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OSG Corporation: Risk Hedging against Transaction Exposures                                                                                                                                                            
 
Product Ref: 06/302C Company: OSG Corporation

Product Type: Case Industry: Capital Goods

Related Product(s): Teaching Note
Authors: Mitsuru Misawa   
In Tokyo on Monday, April 24th 2006, the US dollar fell to a three-month low against the yen to óD114.30 = 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 Corporation in Japan (OSG), 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 yeníVdollar exchange rate, he summoned the manager of the Support Center 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 May 29th 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.
Functional Area : Accounting & Control
Finance & Investments
Strategy & General Management

Issues: Call Option, Cash Flow Valuation, Cutting Tools, Financial Group, Foreign Exchange Market, Forward Hedge, Hedging, Japan, JPY/USD, Money Market Hedge, Option Hedge, Osawa, OSG, Put Option, Support Center, transaction exposure, foreign exchange exposure, foreign exchange transaction exposure, exports, imports, foreign exchange risk, appreciation, depreciation, derivatives, option, forward, future
Length: Text: 9 pages
Exhibits: 11 pages
Country: Japan

Pub. Year: 2006 Level of Difficulty: 3
         
This product type is available in the following language(s):      English   Spanish   Japanese
         
Related Information: The case addresses issues on whether a company should hedge currency risk or not, how much hedging is necessary, if any, against short-term transaction exposures and how a variety of hedging techniques and methods can be used in order to eliminate these exposure risks.
 
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