Hedging Transactions Involving Foreign Exchange Risk – A Primer: Falling in Love with a Puerto Vallarta Condo (Part A)

© 2015 Prof. Farok J. Contractor, Rutgers

CASE STUDY (A): The American Buyers’ Perspective

The two case studies presented examine foreign exchange risk from two perspectives:

(Part A) An American couple has put a down payment on a lovely new condo in Puerto Vallarta, agreeing to pay 5,000,000 Mexican pesos on delivery of the condo in 12 months. CONTINUED ON ARCHIVE

(Part B) But the next day, they have second thoughts and offer the Mexican real estate developer $307,000 instead. The Mexican firm needs to consider the foreign exchange risk from its perspective—while ensuring the sale.

(Part C) Epilogue

Printable Version: Hedging Transactions_Part A_FJContractor_2015

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