Hedging an Account Payable Case Study Example | Topics and Well Written Essays - 1000 words

Hedging an Account Payable - Case Study ExampleThis financial agreement is a trade that involves the exchange of whizz and interest in one currency for the same in another currency after a specific period of time. It is considered to be a international exchange transaction entirely is not ask by law to be shown on the balance sheet.In this type, there should not only be a need for our US based order to acquire Pounds but also the UK supplier needing US dollars. If such is the case, both companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a car park maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, do them a very flexible method of immaterial exchange. This may be recommendable considering that the UK supplier has a subsidiary in the US which may need US dollars for its transactions. The data available to us however indicates does not contain any information regarding this. (Invest opedia, 2006a) (Wikipedia, 2006a).Rather a popular form of swap, the interest rate swap is a financial agreement in which one party exchanges a stream of interest for another partys stream. Interest rate swaps are normally fixed against be adrift but can also be fixed against fixed or floating against floating rate swaps. Interest rate swaps are used to change the companys exposure to interest rate fluctuations by swapping fixed-rate obligations for floating rate obligations or vice versa. To understand how each party would benefit from thisIt is considered to be a foreign exchange transaction but is not required by law to be shown on the balance sheet.In this type, there should not only be a need for our US based company to acquire Pounds but also the UK supplier needing US dollars. If such is the case, both companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are ne gotiable for at least 10 years, making them a very flexible method of foreign exchange. This may be recommendable considering that the UK supplier has a subsidiary in the US which may need US dollars for its transactions.