Pixonix Inc. (Addressing currency exposure

Subject: Customer Relationship Management

Paper Model: APA

Paper Type: Research Paper

Total Words: 874

Document Outline

Pixonix Inc: Addressing currency exposure
Brief description of the case
Explanation of the problemAlternate Solutions:
2)    Purchasing call option
3)    Unhedged option


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Pixonix Inc: Addressing currency exposure

Brief description of the case:

Pixonix Incorporation was operated in Canada (Toronto) as graphic designer company. It used to license software and proprietary tools from a company in U.S. The cost of license was 7.5 million U.S. Dollar. Pixonix revenue was in Canadian Dollar because it was operated in Canada. It has to pay expenses in U.S Dollar. It makes payments in the last of January and June. It is required to convert Canadian Dollar cash flows into U.S Dollar annually. As Canadian dollars were appreciating in value affecting positive response on company’s profit. It was analyzed that Canadian dollar would gain more appreciation in future. In next year, it was analyzed that its value will increase at the end of June after that it will partially decrease.

 Mikayla Cain, chief financial officer of company is considering the impact of this appreciation on company’s cash flow. It is a matter of concern for Cain weather to purchase forward contract or to purchase U.S dollar call option. This case is considering the benefits of using forward contract and call option. It is analyzed in this case that which method would be best for company. It is to be considered that which strategy would results in highest profit and lowest risk of exchange.

 In cash flow, volatility can be caused if hedging strategy is not used. If Canadian dollar depreciate its value from U.S dollar, company will lose. If Canadian dollar appreciate in value from U.S dollar then hedging will not be a good option for company because it can take benefit from this appreciation and can save the cost of hedged transaction.

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