Dozier Industries Exchange Rate on Research Proposal

Excerpt from Research Proposal :

It is likely that the retrieved results will indicate a cost of not hedging significantly larger than that of hedging.

4. Conclusions

Dozier Industries has a long standing tradition and a favourable reputation. The company worked mainly with the military, but also came to engage in civilian contracts. Having operated mostly nationwide, the UK-based company is now presented with the opportunity of conducting international activities. This however implies both benefits, as well as limitations.

A relevant limitation is given by the risks implied by the exchange rates, namely by their future and unknown fluctuations. This is the main reason why organizations choose to sign hedging contracts. The most common hedging alternatives are the forward, futures and option contracts. The option contracts are the most flexible ones, but they do present an additional risk for the seller, ergo employing the premium.

Despite the advances in the financial market, there still are investors who do not protect themselves against currency risks. The main reasons for this include speculation, poor information or fear of high hedging costs. Similar to the insurance business, the costs of hedging must be compared against the costs of not hedging. Otherwise put, the costs of protection are to be compared with the costs of having the currency fluctuate in the detriment of Dozier's interests.

References

Giddy, I.H., the Corporate Hedging Process, New York University, Stern School of Business, http://pages.stern.nyu.edu/~igiddy/corphdg.html. Ast accessed on January 29, 2009

Meera, a.K.M., 2002, Hedging Foreign Exchange Risk with Forwards, Futures, Options and the Gold Dinar: A Comparison Note, Department of Business Administration, Retrieved at http://lariba.com/knowledge-center/articles/pdf/Malaysia%20-%20GOLD%20-%20Hedging%20With%20Dinar.pdfon January 29, 2009

2009, Hedge, Investopedia, http://www.investopedia.com/terms/h/hedge.asplast accessed on January 28, 2009

1986, Dozier Industries, Stanford University

Sources Used in Document:

References

Giddy, I.H., the Corporate Hedging Process, New York University, Stern School of Business, http://pages.stern.nyu.edu/~igiddy/corphdg.html. Ast accessed on January 29, 2009

Meera, a.K.M., 2002, Hedging Foreign Exchange Risk with Forwards, Futures, Options and the Gold Dinar: A Comparison Note, Department of Business Administration, Retrieved at http://lariba.com/knowledge-center/articles/pdf/Malaysia%20-%20GOLD%20-%20Hedging%20With%20Dinar.pdfon January 29, 2009

2009, Hedge, Investopedia, http://www.investopedia.com/terms/h/hedge.asplast accessed on January 28, 2009

1986, Dozier Industries, Stanford University

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