Casper Inc. is a U.S. firm preparing its financial plan for the upcoming year. It has no foreign subsidiaries, but the majority of its sales are from exports to Australia, Canada, Argentina and Taiwan. Estimated foreign cash inflows to be received from exports and foreign cash outflows to be paid for imports over the next year are shown below:
Currency Total Inflow Total Outflow
Australia dollars (A$) A$33,000,000 A$3,000,000
Canada dollars (C$) C$6,000,000 C$2,000,000
Argentina pesos (AP) AP12,000,000 AP11,000,000
Taiwan dollars (T$) T$5,000,000 T$9,000,000
Today’s spot rates and one-year forward rates in US$ are as follows:
Currency Spot Rate One-Year Forward Rate
A$ $ .91 $ .94
C$ .61 .60
AP .19 .16
T$ .66 .65
Given the forecast of the A$ along with the forward rate of the A$, what is the expected increase or decrease in US$ cash flows which would result from hedging the net cash flows in A$? Would you recommend that Casper Inc. should hedge the A$ position?