The Walt Disney Co.’s Yen Financing, Questions and Answers

Individual Case Solution The Walt Disney Co.’s Yen Financing I want to start my opinion on the Walt Disney Co.’s case by disclosing that I previously did not know anything about the meaning of an Interest Rate Swap or a Currency Swap. Of course I also did not know about the techniques, advantages or disadvantages of hedging a currency. But after studying the topic and the case, it helped me understand the meaning and the importance of these types of operations in a company. It made me think of the partner that I have in Dallas, TX, because I pay royalties in Mexican pesos to them. So they probably are monitoring the exchange rate so that their revenue does not get affected and I am sure they are using some instruments; like the one we will discuss in this document. 1) Should Disney hedge its yen royalty cash flow? Why or why not? If so, how much should be hedged and over what time frame? I am convinced that the Walt Disney Co. should hedge its royalty cash flow. We can see in exhibit 4 that there is clearly an exposure to the exchange risk from the Yen. The Yen had already begun appreciating and they kept needing more Yens for every Dollar they want to receive. At that moment their revenues from the Japanese royalties represented a huge amount and was expected to grow by 10% to 20% every year so they are concerned that the risk will continue growing. Even though there is a cost for having to hedge the Yen revenues, I will still suggest it because with this theyShow MoreRelatedMultinational10976 Words   |  44 PagesRemittances Exchange Rate Movements Input for Multinational Capital Budgeting Multinational Capital Budgeting Example Background Analysis Factors to Consider in Multinational Capital Budgeting Exchange Rate Fluctuations Inflation Financing Arrangement Blocked Funds Uncertain Salvage Value Impact of Project on Prevailing Cash Flows Host ostHGovernment Incentives Real Options Adjusting Project Assessment for Risk Risk-Adjusted Discount Rate Sensitivity Analysis Simulation Read MoreFinance in International Markets12499 Words   |  50 PagesExplain how the theory of comparative advantage relates to the need for international business. ANSWER: The theory of comparative advantage implies that countries should specialize in production, thereby relying on other countries for some products. 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