Problem
Exquisite Jewelers has purchased 100 pounds of silver from Silver Mines Ltd. at US$8,000 per pound payable in one year. The current spot exchange rate is 1.6295 (C$/US$) and the one year forward rate, quoted by the company's bank, is 1.6312. The Financial Controller at Fine Jewelers suggests that the spot rate in one year will be 1.6224. Interest rates in Canada are currently 3.9 percent for one year and 3.7 percent in the United States.
1. Outline, with calculations, three alternative actions available to Golden Jewelers to handle its foreign exchange exposure.
2. Advise the company which alternative they should take, providing the reason for your recommendation.