Critically evaluate research from a variety of sources to explain why you have identified this as a risk,and whether you would consider hedging.

Financial Risk Management

Question 1 (20 marks)

Assume you are a US company and expect to receive £ 24,540,000 in 3 months from now. Given the current economic environment in the US and globally, you fear that your company will be adversely affected and wishes to hedge to reduce its risk related to exchange rate changes. Based on this scenario, please answer the following questions:

Identify ONE financial risk faced by the US company given the above scenario. Systematically review and critically evaluate research from a variety of sources to explain why you have identified this as a risk,and whether you would consider hedging.

Discuss in your answer the outlook for the underlying variable and cite evidence of an adverse and/or favourable direction. NB: reference list will not be part of the word count. (250-300 words)