An employee at Grenfeld & Co. who was responsible for analyses, was given the task to formulate hedging tactics for Providence Equity Partners (Providence), a part ofBell Canada Enterprises (BCE Inc.). Providence had its headquarters within the United States and any tactic could entail significant foreign exchange rate risk as a result of conversion of returns into U.S. dollars.
The analyst needed to contemplate several long-term hedging strategies that Grenfeld & Co. could advocate to Providence. Her vice-president requested that she create a hedging strategy by initially assuming a 25 per cent IRR for the investment and its operation, based on two results at the end of the investment (investment horizon = five years): a zero per cent IRR and a 25 per cent IRR.
Publication Date: 01/20/2009
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