| Course | GF581 Financial Strategies for a Global Environment |
|---|---|
| Unit | Unit 4 |
| Paper type | Hedging decision memo |
| Length | About 780 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF581 Unit 4
Forward for the Contract, a Put for the Tender: A Unit 4 Hedging Decision Memo on Two Yen Exposures
[Student Name]
Purdue University Global
GF581: Financial Strategies for a Global Environment
Unit 4 Hedging Decision Memo
[Instructor Name]
[Date]
The membrane maker, its customers and every rate and premium are composite and illustrative; the articles and textbook cited are real.
Memorandum
To: Treasurer From: Treasury Analyst Date: March 3, 2026 Re: Hedging the yen receivable and the yen tender
Recommendation
Sell the 420 million yen receivable forward for 90 days at 146.7186, locking in about $2,862,622. Buy a 90-day yen put on the 610 million yen tender bid, at a premium of about $74,000, rather than selling it forward. Leave the franc payable open for now and revisit it in 60 days.
The Contracted Receivable: Four Treatments
Leave it open. At today's spot rate of 148.00, the receivable is worth about $2,837,838. With 90-day yen volatility near 5 percent, there is a 5 percent chance of losing at least about $233,400 if the yen weakens.
Forward hedge. The 90-day forward rate, from deposit rates of 0.75 percent in yen and 4.25 percent in dollars, is 148.00 times 1.001875 divided by 1.010625, about 146.7186 yen per dollar. Selling 420 million yen forward locks in about $2,862,622, about $24,785 more than converting at today's spot, because yen interest rates are lower than dollar rates.
Money market hedge. Borrow the present value of 420 million yen, about 419,213,974 yen, convert at spot to about $2,832,527 and invest the dollars for 90 days at 4.25 percent. At maturity the dollars grow to about $2,862,622 and the customer's payment repays the yen loan. The result matches the forward, as interest rate parity requires (Eiteman et al., 2016).
Option hedge. A 90-day yen put struck at 148.00 would cost about 1.8 percent of notional, about $51,000, protecting against a weaker yen while keeping the gain if the yen strengthens; option pricing for currencies follows the same logic as for stocks, with the foreign interest rate playing the role of a dividend (Bekaert & Hodrick, 2018).
Choice. The forward is recommended. The receivable is contracted, so there is no uncertainty about whether the yen will arrive, and the forward locks in a slightly better rate than spot at no premium. The money market hedge would also work but uses credit lines.
The Tender: Why a Forward Would Be Wrong
The company has bid on a 610 million yen membrane contract for a desalination plant, about $4.12 million at spot. The award will be announced in about 60 days, and the company estimates its chance of winning at 40 percent.
A forward sale of 610 million yen would be dangerous. If the company loses the bid, it would still owe 610 million yen under the forward and would have to buy yen in the market to deliver. If the yen had strengthened, that loss could be large, with no receivable to offset it.
A forward fits a contracted receivable because the yen will certainly arrive, but for a tender the company may lose, a forward would create the very exposure it is meant to remove, so the right tool is an option whose worst case is the premium paid.
The put. A 90-day put on 610 million yen, struck near the bid's assumed rate of 150 yen per dollar, costs about 1.8 percent of notional, about $74,000. If the company wins and the yen has weakened, the put pays off. If it wins and the yen has strengthened, the put expires and the company converts at the better rate. If it loses, the most it has spent is the premium. Research on corporate hedging finds that firms facing uncertain quantities use options more than linear hedges for exactly this reason (Brown & Toft, 2002).
What Each Choice Leaves Behind
The forward leaves no currency risk on the receivable but removes any gain if the yen strengthens. The put leaves the company exposed to the yen only through the premium, about $74,000, which is lost in the 60 percent of cases where the bid fails. Over many tenders, that premium is a cost of bidding in yen.
The Franc Payable
The 1.9 million franc payable is six months away. Its 95 percent loss over that horizon is about $200,900, but the company expects franc revenue from a Swiss distributor in the next quarter that could cover part of it. A decision can wait 60 days without adding much risk.
Next Steps
Execute the forward this week, buy the tender put before the bid closes, and add the franc payable to the April treasury meeting.
References
Bekaert, G., & Hodrick, R. J. (2018). International financial management (3rd ed.). Cambridge University Press.
Brown, G. W., & Toft, K. B. (2002). How firms should hedge. The Review of Financial Studies, 15(4), 1283-1324. https://doi.org/10.1093/rfs/15.4.1283
Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2016). Multinational business finance (14th ed.). Pearson.
GF581 Unit 4 instructions, in plain terms
Unit 4 of GF581 asks for a memo recommending how to hedge specific currency exposures. Put the recommendation first. For each exposure, set the realistic choices side by side, from doing nothing through forward cover, borrowing and lending across currencies, and buying an option, with the cost and outcome of each in figures. Explain why the forward and money market hedge give the same result. Distinguish contracted exposures from uncertain ones, such as bids, and explain why the instrument should differ. Describe what each choice leaves behind. Address any exposure you recommend leaving open for now, with a reason and a review date. Close with steps that carry dates. Support the memo with a multinational finance textbook and a study of how firms hedge, listed in APA 7.
How this GF581 Unit 4 example is built
After the heading block, the sample's memo states its recommendation for the receivable, the tender and the franc payable. Four treatments of the receivable follow, from the open position's $233,400 risk to the forward, the money market hedge, citing Eiteman, Stonehill and Moffett on parity, and an option with a note citing Bekaert and Hodrick. A section on the tender explains why a forward would be dangerous, and the highlighted sentence matches instrument to exposure. The put is priced at about $74,000, with Brown and Toft's evidence on hedging uncertain quantities. A section describes what each choice leaves behind, the franc payable is deferred with its reasons, and dated next steps close the memo.
Where the points sit in the GF581 Unit 4 rubric
GF581 hedging memos are graded on correct pricing of each alternative and a reasoned match between instrument and exposure. Graders check the forward rate, the money market hedge's equivalence and the option cost. The largest analytical share rewards recognizing that uncertain exposures call for options rather than forwards, and explaining why. Describing what each hedge leaves behind shows understanding of trade-offs. Instructors in this MS in Finance course value recommendations that address every exposure, including those deliberately left open with a review date. Memo format with the recommendation first, with Brown and Toft and both textbooks listed in APA 7, earns the remaining points. Readers of the memo also check that the memo treats the deferred franc payable as a decision with a date rather than an oversight.
GF581 Unit 4 help from the desk
Many GF581 Unit 4 memos call the forward premium a cost of hedging, though it reflects the interest differential and a money market hedge reproduces it. Others recommend forwards for bids and forecast sales, creating exposure if the business does not materialize. Option premiums are stated without saying what they buy. The memo hedges one exposure and ignores the rest, or hedges the tender with a forward because it is cheaper. Recommendations lack dates, so nothing gets executed. For whatever exposures your case supplies, keep the memo's logic: recommendation first, each treatment priced, equivalence of forward and money market hedges explained, instrument matched to certainty, residuals named and next steps dated.
Get a GF581 Unit 4 example written to your instructions
Say what is owed or bid, in which currency and when it settles, and pass along whatever quotes the case lists for Unit 4, with its prompt and rubric. The custom memo prices each cover against the unhedged loss for that exposure and is ready within 24-48h, the first at no charge. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF581 Unit 4 questions, answered
Is the forward premium a cost of hedging?
Not in the sense the memo uses. The gap between the forward and today's spot reflects the interest differential between the two currencies, and a money market hedge reproduces it exactly. The real cost of a forward is what it gives up, any gain from a favorable move. Premiums paid for options are a cost in the plain sense and belong in the comparison table.
When does an option beat a forward?
When the exposure is uncertain, or when the firm values keeping the upside enough to pay for it. A bid, a forecast sale or a contract with a cancellation clause suits an option, since a forward on an amount that never arrives becomes a speculative position. For a firm receivable, the forward usually wins unless the rate would have to move a long way to repay the premium.
Should the memo recommend hedging only part of the exposure?
It can, if the reason is stated. Partial cover makes sense where the amount itself is uncertain, where a policy sets a ratio, or where natural offsets exist elsewhere in the firm. A ratio chosen without a reason looks like splitting the difference. Say what the uncovered portion is exposed to and why the firm can carry it.
Where can I find a free GF581 Unit 4 sample paper?
This page carries a full GF581 Unit 4 hedging decision memo for two yen exposures, with forward, money market and option treatments priced, a recommendation and APA 7 references.
Why does the forward lock in more than today's spot?
Yen deposit rates are lower than dollar rates, so the 90-day forward prices yen slightly dearer. Selling yen forward at 146.7186 gives about $24,785 more than converting at 148.00 today.