a. Describe fully, at the conceptual level, the nature of the three strategies CalFab can follow to deal with possible changes in the /$ exchange rate over the life of the contract with Hartmund. Indicate what risks are borne under each, and what conditions establish which would be preferable in any given situation.
b. Analyze in detail the relative costs and desirability of those three alternative strategies for the specific situation faced by CalFab in the case at hand.
c. Of what relevance to those strategies is the information in the Exhibits to the case about Yen exchange rates and interest rates?
d. Discuss the general nature, causes, and consequences of currency exchange risk, as faced by companies such as CalFab who are engaged in export business.
e. Describe what is meant by the term “real option”. How can the existence of such options affect a company’s capital expenditure decisions? Give concrete examples of the latter effects.
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