Question

Do you think Embraer’s decision to try and hedge against further appreciation of the real in the early 2000’s was a good decision? What was the alternative?

Answer 1

Embraer-

It Is a giant aerospace conglomerate in Brazil that produces many types of aircrafts like commercial,agricultural ,executive and military and provides services (aeronautical services). After Boeing and Airbus it ranks 3^rd being the largest producer of aircrafts.

ANS.- I think they would have taken a better route in taking a decision than that of the one they made. They should have bought some kind of forward contracts (it is a private agreement where the buyer is obligated to purchase an asset and the seller is obligated to sell an asset at a predetermined price which is set and agreed upon by both the parties at a future point of time)would have been more ideal if their was some kind of guarantee to protect from depreciation.

          Alternatively also they did a mistake while choosing fixed contracts today instead of choosing Flexible forward contracts (Is FX contract which allows the owner to fix the rate of buying and selling rate of a currency pair today . for a specific amount it is set and between two sets of dates) which would have allowed them to be use or apply immediately when the Brazilian real began to depreciate.