SALEM Manufacturing Essay Example | Topics and Well Written Essays - 250 words

SALEM Manufacturing - Essay Example Since Salem is expecting a minimum acceptable margin sale price of 1,500,000 dollars and if the expected exchange rate of $1.56 per British pound goes below $1.50 per British pound, this would end up in a loss on Salem’s side which is not desirable and moreover such a hedge can increase the tax burden too. The option of Money marketing hedge would also prove us wrong for the same reason as explained above. By locking the British pound transaction in dollars, the company can also suffer losses as dollar value goes down per British pound. The Options marketing hedge will do no better than the previous strategies when the results are considered. Offsetting the British pounds and waiting for the price to be favorable would be risky in this scenario. So the best option among those we have is to remain Unhedged. This is considered to be the best strategy as in this method Salem’s exposed amount of $1,500,000 is subjected to the movements of the relevant exchange rate. In seve ral cases of this kind, the unhedged strategy has worked better to the hedge strategies yielding safe results. The hedge strategies usually work with special cases that come with biased conditions.