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A company whose operations (and costs) are located in the United States has most of its...

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Finance

A company whose operations (and costs) are located in the UnitedStates has most of its sales in the United Kingdom. The company’smanagers think the main effect on the pound-dollar rate will beBrexit but there are three possible scenarios: a messy Brexitcauses a sharp depreciation of the pound, a post-Brexit investmentboom causes an appreciation of the pound, or a delay of Brexitcauses the pound-dollar rate to remain stable. a) Which of thethree scenarios would be costly to the company? Which would beadvantageous? Explain briefly. b) The manager considers the Brexitdelay to be the most likely and the Brexit scenario advantageous tothe company to be very unlikely. She wants to hedge against thescenario that is costly to the company. Under these circumstances,would futures or options be a better way to hedge? Why is the factthat the advantageous scenario is unlikely relevant to thedecision?

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3.7 Ratings (336 Votes)
During 2016 UK had voted to leave the European Union Brexit means exit of Britain from the Europan Union For Financial markets it would have a big impact as UK based firms will lose their passporting rights to conduct business with other countries in the EU ie 27    See Answer
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