IFC Manufacturing - Foreign Exchange Hedging
(7 pages of text)
Case (Gen Exp)
IFC Manufacturing, an automobile parts producer, was attempting to raise capital to fund expansion in Mexico. In order to secure financing, the creditor banks required an assessment of the IFC's financial risk management apparatus. IFC had exposures to foreign exchange and interest rates. IFC had grown aggressively by acquiring firms on both sides of the Canadian-U.S. border, funding these purchases in U.S. dollars. The case allows for discussion of a number of issues, including: internal controls (the Group of Thirty recommendations for good derivatives practices), risk measurement and management. Data is provided which allows students to qualify translational and transactional risk exposures. Information is also provided allowing students to evaluate IFC's portfolio of hedging instruments which includes plain vanilla options, single barrier options, double barrier options and average rate options.
Canada, Medium, 1998
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