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Hedging Strategy - Mcdonald's vs Nodal's Logistics

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Submitted By messen
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Pages 5
Hedging Strategies: McDonald’s Vs. Nodal’s Logistics
Name: Mohssen Owlad
Lecturer: Professor Mar Paronich
Date: 21/07/13

INTRODUCTION

Most companies around the world, which are dependent on any facility or transaction outside of the country of the origin, would encounter global market risks. Companies might be impacted by some global market risk, including foreign currency fluctuation and changes in interest rates. Therefore, when a company investment goes abroad and involves a foreign currency, global market risks are expected. All the companies employ several financial instruments and hedging activities to protect their investments. Different companies prefer various hedging strategies based on nature of their businesses and the risks’ areas they are exposed to. Hedging strategies can be applied to reduce devaluation effects and foreseen fluctuations in interest rates. In this assignment two different hedging strategies used by different companies will be discussed. McDonald’s Co. and Nodal’s Logistics are two companies that have applied certain hedging strategies to mitigate the impact of severe changes in currency and interest rates. McDonald’s Co. has its own risk management objective and strategy to tackle hedging transactions and all relationships between hedging instruments and hedging items. McDonald’s Co.’s derivatives that are appointed as hedging instruments have focused on interest rate swaps, foreign currency forwards and foreign currency options, cross-currency swaps and commodity forwards, which are classified into three main categories; fair value hedges, cash flow hedges and net investment hedges. Nodal’s Logistics also had five hedging strategies to secure its investment in Brazil and void probable impact of Brazilian currency fluctuations and interest rates. The proposed hedging strategies for Nodal’s Logistics include forward contracts,…...

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