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1、ChapterChapter33ForwardMarketsandTransactionExchangeRiskComercialMexicana,Mexico’sthirdlargestretailerandacompetitorofWalmart,sellsmanygoodsimportedfromtheUnitedStates.BecauseComercial’srevenuesareinMexicanpesos,astrengtheningofthedollarrelativetotheMexicanpesoincrea
2、sesComercial’scostsandlowersitsearnings.Ingeneral,whenthedeliveryofandpaymentforgoodstakessometime,futurefluctuationsinexchangeratesgiverisetopotentiallosses,andpossiblegains,forthepartiesinvolved.Thepossibilityoftakingalossinsuchatransactioniscalledtransac-tionexcha
3、ngerisk.InChapter2,weexaminedtheorganizationofthespotforeignexchangemarket,inwhichtheexchangeofcurrenciestypicallyhappensin2businessdays.Thischapterexam-inestheforwardforeignexchangemarket(ortheforwardmarket,forshort).Itisthemar-ketforexchangesofcurrenciesinthefuture
4、.1Oneofthemajorreasonsfortheexistenceofforwardmarketsistomanageforeignexchangeriskingeneralandtransactionexchangeriskinparticular.Theforwardmarketsforforeignexchangeallowcorporations,suchasComercialMexicana,toprotectthemselvesagainsttransactionexchangerisksbyhedging.
5、2Tohedgeagainstsuchrisks,thecorporationentersintoanadditionalcontractthatprovidesprof-itswhentheunderlyingtransactionproduceslosses.Toevaluatethecostsandbenefitsofhedgingforafuturetransactioninvolvingforeigncurrencies,thehedgingpartymusthavesomewaytoquantifythedegree
6、ofuncertaintyitfacesaboutfuturespotexchangerates.Itaccomplishesthisbyfiguringoutthelikelihoodofobservingvariousrangesforfutureexchangerates.Unfortunately,priortotheglobalfinancialcrisis,ComercialMexicananeitherassessednorhedgeditstransactionexchangeriskproperly.Inste
7、ad,itdabbledexcessivelyincomplexforeignexchangederivativescontracts.Asthedollarstrengthenedinthefallof2008,Comer-ciallost$1.4billionandwasforcedintobankruptcy.Numerousothercompaniesthroughoutthedevelopingworldtookenormouslossesonforeignexchangecontracts,includingCITI
8、CPacificofHongKong,aninfrastructurefirm,whichlost$1.89billion,andAracruzCeluloseSAofBrazil,theworld’sbiggesteucalyptuspulpmaker,whi
