Business Case Study on Clearwater Seafoods Income Fund
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1. Prepare a brief background discussion of Clearwater covering its product, value proposition, and any other factors that you consider important to your analysis of the case. Describe Clearwater’s foreign exchange exposure. Relate your background discussion to the decision facing Robert Wright.
2. Using exchange rates for the US dollar, euro and Japanese yen provided for 2005 in Exhibit 3 and sales by currencies in Canadian dollars in Exhibit 5, calculate Clearwater’s total exposure to a 1 percent change in the exchange rate for each of these three major currencies if no hedges were in place. Determine the exposure with the forward hedges currently in place. Use this information to determine how Clearwater would have to change the amount hedged in each currency if Robert Wight decided to hedge 100% of the firms exposure with forward contracts based on 2005 data.
Business Case Study on Clearwater
4. As part of its strategy review, Clearwater wishes to explore the possible use of put options and currency futures. Develop an analysis of the possible role for these derivatives and provide and example of each (quantitative and qualitative).
5. What are the costs and benefits associated with each alternative strategy? How would each alternative address Clearwater’s need to generate cash both to fund growth and to resume distribution payments quickly?
6. Drawing on your analysis of the case and your knowledge of best practices in risk management, state and defend your recommendations for Clearwater’s currency exposure management strategy.