Hi .. I need to submit a paper on the hedging strategies of a listed company. The question is: How does "the company" hedge itself? The information is available in the company's 2011 annual report,...

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Hi .. I need to submit a paper on the hedging strategies of a listed company. The question is: How does "the company" hedge itself? The information is available in the company's 2011 annual report, but I am too busy and I need a help to complete this 4 - 5 pages paper. Could you please let me know if you can do this paper for me? the submission is after 10 days. I will tell you the name of the company when you reply to me. I prefer to communicate through email [email protected] What would be the cost of such paper?? Thank you, Mohd (MBA student)

Answered Same DayDec 21, 2021

Answer To: Hi .. I need to submit a paper on the hedging strategies of a listed company. The question is: How...

David answered on Dec 21 2021
128 Votes
Schneider Electric is the global specialist in energy management with revenue of EUR 23 billion
annually and with staff strength of 130000 people across the globe. Company is pioneer in
energy business with 24% of the revenue coming from utility and infrastructur
e, 22% industrial
and machinery, 16% in data center and balance from others infrastructure business. Sales are
spread across geography with 32% coming from Western Europe, 27% from Asia Pacific, 23%
from North America and 18% from rest of the world. Thus revenue and expenses are flowing
across the world in different currencies and they needs to adopt various hedging strategies in
order to hedge the flows. The risk arises in the form of hedging interest rate and currency risk
and commodity price risk and equity risk. Inspite of having proper risk management team and
well defined policy exchange losses, in 2011 was accounted for EUR40 million, compared to an
income of EUR25 million in 2010.
Interest rate risk: The Group’s borrowing is mainly in the nature bond debts which involves
payment of interest on fixed rate. Company’s total borrowing amounts for EUR 1.2 billion and
thus interest rate volatility is very high as 1% change in the interest rate would impact the
revenue by EUR 12 million. Thus the group needs to effectively manage the interest rate risk
and for the same it is using swap in order to move from floating to fix depending upon the
movement in interest rate in respective country. Like, currently western country have very low
interest rate thus it is prudent to move from fixed to floating in such place. Similarly Asian
countries where interest rate is rising due to high inflation, company can keep it flows in fixed
rate and need not swap it. Companies adopts interest rate swap in order to hedge the interest
rate and move from fixed to floating. Interest Rate Swap is an agreement between two parties
where one parties exchange or swap the flows from fixed to floating based upon benchmark
rates prevailing on the day of swap. Thus depending upon the interest rate scenario, company
takes a call upon swapping the same.
(Libor or Euribor+ spread)
(Fixed)
Pay
Fixed
Schneider Electric
Loan fixed
Bank
Borrower
Currency Risk:
As Schneider Electric’s business operation is expanded globally, it is exposed to currency
fluctuation in more than 12 currencies and among them USD dollar and Hong Kong Dollar
accounts for significant proportion. There is a...
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