Hedging the Swedish Krona Exposure Case Study
6. Hedging the Swedish-Krona Exposure. You are a senior analyst in Mondi’s Treasury 100 + 20
Division asked to outline possible avenues to address the risks and exposures arising from
the Svenska Cellulosa transaction. However, first, you provide some background and why this
transaction might be different.
(a) A country’s currency is often likened to its share price. What does Mondi’s FX fore-
casting model suggest about their expectations for the Swedish economy, the SEK, and
their need for hedging the Svenska Cellulosa exposure?
(b) What are the realistically available alternatives for Mondi to make payment?
(c) What is the best strategy of all listed above to minimize the expected expense in Mondi’s
final payment? How does it t into Mondi’s stated risk-management methodology?
(d) What are the dangers of leaving the exposure unhedged? Might there be any advantages
to this course of action?
(e) Exchange rate uncertainty does not necessarily mean that firms face exchange risk ex-
posture. Why might this be the case?
(f) Bonus problem. Although Mondi does not speculate their Treasury Division is not
averse to exploiting arbitrage positions. Analyze the data in the case and determine
whether there are any arbitrage opportunities. If so, present a detailed strategy and
compute its potential profit.
