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Saizeriya and the Use of Foreign Currency Coupon Swaps: Was This for Hedging or Speculation?  
 
Product Ref: 14/538C Company: Saizeriya Co., Ltd.

Product Type: Case Industry: Food Distributors

Related Product(s): Teaching Note
Authors: Mitsuru Misawa   
Ever since Yasuhiko Shogaki took over Saizeriya Co., Ltd. (Saizeriya) in 1968, the restaurant had aimed to provide healthy and tasty Italian meals at affordable prices for everyone.

On 9 December 2008, Shogaki made a stunning public announcement - that the company had incurred a loss of ¢D15 billion caused by the use of foreign currency coupon swaps. He further announced that because of such transactions (such as trading in derivatives to hedge against foreign exchange risks), the Italian-restaurant chain operator might fall into the red in terms of group net earnings for that fiscal year through August 2009. Shogaki revealed that Saizeriya had signed derivatives deals with BNP Paribas Securities (Japan) Ltd. in October 2007 to procure Australian dollars (A$) that the restaurant needed to import food from that country. Following the disclosure, Saizeriya¡¦s stock price went limit-down on 10 December 2008 as investors rushed to dump the stock. Some directors and shareholders questioned this disclosure.

Shogaki then had to decide whether the company should continue hedging (such as with swaps), despite the fact that Saizeriya had just suffered huge losses from similar transactions. If Saizeriya did not arrange any hedging, the company could enjoy yen appreciation merits for the payments in A$.
Functional Area : Finance & Investments

Learning Objective: Students will learn about the critical thinking skills that top management must possess in order to make important business decisions as whether to hedge foreign exchange risks.

This case can be used in both undergraduate and graduate level courses in international business and finance and has already been used in the author¡¦s international finance course teachings. This case is particularly appropriate for courses that focus on financial derivatives and hedging
Length: 38 pages Country: Japan

Pub. Year: 2014 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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