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1、BUFN770InternationalInvestmentsTheWaltDisneyCompany’sYenFinancingTheWaltDisneyCompany’sYenFinancingIssueTheWaltDisneyCompanyisadiversifiedinternationalcompanywhichoperatedentertainmentandrecreationalcomplexes,producedmotionpictureandtelevisionfeatures,developedcommunityrealestateprojects,andso
2、ldconsumerproducts.InJuly1984,Disneywasconcernedaboutpossibleforeign-exchangeexposureduetofutureyenroyaltyreceiptsfromTokyoDisneyland.Theroyaltyreceiptshadbeenjustover¥8billionduringfiscal1984andwereexpectedtogrowveryfastoverthenextfewyears.Sinceyendepreciatedagainstdollarrecently,RolfAnderson
3、,thedirectoroffinanceatDisney,wasconsideringvariouswaysofhedgingthisexposure.Inthemeantime,Borrowingsanddebtratioincreasealotinattheendoffiscal1984duetotheacquisitionofArvidaandit’stheexpenditurefortherepurchaseof4.2millionsharesofthecompany’scommonstock.Therefore,Disneyneededasolutionthatcanh
4、edgetheforeign-exchangeexposureandreduceitsshort-termdebtatthesametime.There’refourdifferentwaysofhedgingthisexposure—(1)foreign-exchange(FX)options,futures,andforwards(2)swapoutofexistingdollardebtintoayenliability(3)ten-yeartermloan(4)swapoutoften-yearECUEurobondsintoayenliability.Alternativ
5、es(1)Foreign-exchangeoptions,futures,andforwardsMr.AndersoncouldsellFXoptions,futuresandforwardstohedgetheexchangeriskcreatedbytheincreasingyenroyaltyreceiptsiftheyencontinuedtodepreciateintheyearsahead.However,liquidmarketsforoptionsandfuturescontractsexistonlyformaturitiesoftwoyearsorless.An
6、dMr.Andersonprobablyneededtohedgeformorethantwoyear.Therefore,optionsandfuturesshouldberuledout.Disneycouldalsousetheforwardexchangemarkettolockitsdollarvalueofitsyenroyalties.However,long-datedoutrightforwardrates(Exhibit5)werepricedveryconservativelybybanks,andthebid-offerspreadstendedtoopen
7、quitewide.Moreover,Banksareusuallynoteagertotakeontheriskofchangesinfuturelevelofspotexchangerates.Thus,itwouldnotbeawisechoiceforDisneytohedgebysellingyenforwards.(2)SwappingoutofexistingdollardebtintoyenliabilityDisneycouldenterintoaD
