The Vice-President of Finance for Westwood Plastics, Inc. (Westwood) wants to assess the impact of the possibility of a weakening Canadian dollar on the company’s financial health given his commitment to the euro. Because Westwood is required by a loan covenant to produce a minimum level of pre-tax earnings, management of the potential impact of exchange rate fluctuations on forecasted earnings and cash flow is affected. The Vice President of Finance is considering both an option and a forwar … Read more »

The Vice-President of Finance for Westwood Plastics, Inc. (Westwood) wants to assess the impact of the possibility of a weakening Canadian dollar on the company’s financial health given his commitment to the euro. Because Westwood is required by a loan covenant to produce a minimum level of pre-tax earnings, management of the potential impact of exchange rate fluctuations on forecasted earnings and cash flow is affected. The vice president of the funding will minimize both an option and a forward strategy to currency risk Westwood is still under consideration. You need to decide how to use financial instruments to hedge the risk.
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James E. Hatch
Manpreet Hora
Source: Ivey Publishing
9 sides.
Publication Date: Oct 12, 2006. Prod #: 906N17-PDF-ENG
Westwood Plastics Inc. HBR case solution

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