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1. The Pack Corporation is a U.K. exporter that invoices its exports to the United States...

1. The Pack Corporation is a U.K. exporter that invoices its exports to the United States in USD. If it expects that the USD will appreciate against the pound in the future, should it hedge its exports with a forward contract? Explain. What alternative strategy (if any) can the company used to hedge her receivables?

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Answer #1

The Pack Corporation of UK exported in USD.

If they expect the value of USD will appreciate against pound it will be benificial for Pack Corporation.

To benefit from the price appreciation they should not hedge with a forward contract. As it locks the future price.

Alternate way of Hedging :

Pack corporation can hedge right now using Put option of USD for downside risk. As it will lock the price but if price get appreciate still they can benifit from the price appreciation.

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