Dell Computer produces its machines in Asia with components largely imported from the United States and sells its products in various Asian nations in local currencies.
a. What is the likely impact on Dell’s Asian profits of a strengthened dollar? Explain.
b. What hedging technique(s) can Dell employ to lock in a desired currency conversion rate for its Asian sales during the next year?
c. Suppose Dell wishes to lock in a specific conversion rate but does not want to foreclose the possibility of profiting from future currency moves. What hedging technique would be most likely to achieve this objective?
d. What are the limits of Dell’s hedging approach?
