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Case
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Reference no. E107-051-1
Spanish language
Authors: Mitsuru Misawa
Published by: Asia Case Research Centre, The University of Hong Kong
Published in: 2006

Abstract

This is a Spanish version. In Tokyo on Monday 24th April 2006, the US dollar fell to a three-month low against the yen to 114.30 yen = US$1, carrying over its weakness from Friday's trading in New York where it had fallen more than 2 yen (1.75%). Mr Teruhide Osawa, President of OSG (Osawa Screw Grinding) Corporation in Japan, a multinational, cutting-tool producer, was following the foreign exchange market on his computer screen that Monday and was very surprised to see that the yen had appreciated 1.75% in one day. He wondered if such a big change would cause problems for the company's business. Faced with big fluctuations in the yen-dollar exchange rate, he summoned the manager of the Support Centre Finance Group, asking him to analyse and report on how OSG's foreign currency transaction exposure was measured, and how it could be managed. He asked the manager specifically how the company was currently hedging its foreign currency exposures. The finance group gave a presentation at the meeting of the board of directors on 29th May 2006. They explained that in order to eliminate short-term transaction exposure, a variety of hedging methods were available at varying costs to the company. After the presentation by the finance group, members of the board got into a heated discussion. The case addresses issues on: (1) whether a company should hedge currency risk or not; (2) how much hedging is necessary, if any, against short-term transaction exposures; and (3) how a variety of hedging techniques and methods can be used in order to eliminate these exposure risks.
Location:
Other setting(s):
2006

About

Abstract

This is a Spanish version. In Tokyo on Monday 24th April 2006, the US dollar fell to a three-month low against the yen to 114.30 yen = US$1, carrying over its weakness from Friday's trading in New York where it had fallen more than 2 yen (1.75%). Mr Teruhide Osawa, President of OSG (Osawa Screw Grinding) Corporation in Japan, a multinational, cutting-tool producer, was following the foreign exchange market on his computer screen that Monday and was very surprised to see that the yen had appreciated 1.75% in one day. He wondered if such a big change would cause problems for the company's business. Faced with big fluctuations in the yen-dollar exchange rate, he summoned the manager of the Support Centre Finance Group, asking him to analyse and report on how OSG's foreign currency transaction exposure was measured, and how it could be managed. He asked the manager specifically how the company was currently hedging its foreign currency exposures. The finance group gave a presentation at the meeting of the board of directors on 29th May 2006. They explained that in order to eliminate short-term transaction exposure, a variety of hedging methods were available at varying costs to the company. After the presentation by the finance group, members of the board got into a heated discussion. The case addresses issues on: (1) whether a company should hedge currency risk or not; (2) how much hedging is necessary, if any, against short-term transaction exposures; and (3) how a variety of hedging techniques and methods can be used in order to eliminate these exposure risks.

Settings

Location:
Other setting(s):
2006

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