Benefit in using a currency option or currency swaption


Primetime Systems, Inc. now has total worldwide revenues of over $820 million forecast for this coming year. You have operations in the United States of $450 million with a 12% ROS (return on sales), operations in Germany of €200 million with an a return on sales (ROS) of 11%, and operations in Shanghai, China, of 990 million yuan with an ROS of 9%. You expect to repatriate all the ROS to the U.S. when available in 12 months. Determine the spot and 12-month forward exchange rates and determine any change in the ROS repatriated in 12 months based on exchange rates versus the current forecast. Describe the repatriation using a spot transaction, an outright forward, and a foreign-exchange swamp. Would there be any use or benefit in using a currency option or currency swaption? Describe each. How would you advise the company to handle the repatriation?

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Finance Basics: Benefit in using a currency option or currency swaption
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