| Course | FIN 336 Multinational Corporate Finance |
|---|---|
| Module | Module 3 |
| Paper type | undergraduate assignment comparing hedges for a foreign currency receivable |
| Length | About 1,020 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Finance |
| Updated | October 2026 |
Free sample paper for FIN 336 Module 3
Hedging a 180-Day Receivable in Brazilian Reais
[Student Name]
Southern New Hampshire University
FIN 336: Multinational Corporate Finance
Module Three Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Hedging a 180-Day Receivable in Brazilian Reais
Introduction
In July 2025 a composite grain bin and dryer manufacturer in Sioux Falls, South Dakota, shipped a 10-bin storage system to a farm cooperative in Rondonópolis, Mato Grosso. The invoice is for 12.0 million Brazilian reais (BRL), payable in 180 days, in January 2026. The firm's own costs for the order, steel, labor, freight and installation crews, total about $1.85 million, all paid in dollars. This is transaction exposure: a known foreign currency amount will arrive on a known date, and its dollar value depends on the exchange rate then. Because the firm will sell reais for dollars, a weaker real hurts it. This paper prices three hedges, compares them with staying unhedged and recommends one.
Market Quotes
The figures used here are close to mid-2025 market levels, with the rate quoted in reais per dollar.
Quotes on the invoice date
| Item | Value |
|---|---|
| Spot rate | 5.45 BRL per USD |
| 180-day Brazilian interest rate (CDI, period rate) | 7.24% |
| 180-day U.S. interest rate (period rate) | 2.13% |
| 180-day put on BRL, strike 5.80 BRL per USD | Premium 2.0% of the dollar notional |
| Firm's dollar cost of the order | $1,850,000 |
At today's spot rate the invoice is worth 12,000,000 / 5.45 = $2,201,835, a margin of about $352,000 over cost. That margin is the amount the firm is trying to protect.
Staying Unhedged
If the firm does nothing, it receives whatever 12 million reais buy in January. At 5.72 that is $2,097,902; at 6.20, roughly the end-2024 level, $1,935,484; and at 6.80 only $1,764,706, below the order's cost. The real lost more than 20 percent in 2024, so a move of that size within six months is not far-fetched. Bartram et al. (2010) note that many firms show little measured exposure in their stock returns precisely because they hedge and pass costs through; a firm that does neither carries the full swing.
Forward Hedge
Brazil restricts offshore delivery of reais, so U.S. companies hedge with a non-deliverable forward (NDF). The firm agrees with its bank on a rate today; in January the bank and the firm settle in dollars the difference between that rate and the official fixing. Covered interest parity gives the forward rate:
F = 5.45 x (1.0724 / 1.0213) = 5.723 BRL per USD.
Locking in 5.723 fixes the dollar value of the invoice at 12,000,000 / 5.723 = $2,096,802 whatever happens to the spot rate. The cost of certainty is the forward discount: about $105,000 less than the invoice is worth at today's spot rate, which reflects the interest differential, not a bank fee. The margin falls to about $247,000 but cannot disappear.
Money Market Hedge
A money market hedge creates the same protection with loans. The firm's São Paulo sales subsidiary borrows the present value of the receivable in reais: 12,000,000 / 1.0724 = R$11,189,855. It converts that sum at spot to $2,053,184 and remits it to Sioux Falls, where it earns 2.13 percent for 180 days, growing to $2,096,917. In January the cooperative's payment repays the real loan exactly. The result, $2,096,917, nearly equals the forward outcome, as parity predicts. In practice the money market hedge is slightly worse: the subsidiary would pay a spread over the interbank rate, Brazil levies a financial transactions tax (IOF) on some loans and exchange operations, and the loan uses the subsidiary's credit lines. The forward is simpler and cheaper.
Option Hedge
A put on the real with a strike of 5.80 lets the firm sell its reais at 5.80 if that rate beats the market, and walk away otherwise. The protected dollar value is 12,000,000 / 5.80 = $2,068,966. The premium, 2.0 percent of that notional, is $41,379, paid today; with six months of interest at the U.S. rate, its cost at maturity is about $42,260. The worst outcome is therefore $2,068,966 minus $42,260, or $2,026,706. If the real strengthens, the firm lets the option lapse and converts at the better market rate, minus the premium.
Comparing Outcomes
Dollars received for R$12 million, net of premium (thousands)
| BRL per USD in January | Unhedged | Forward at 5.723 | Money market | Put, strike 5.80 |
|---|---|---|---|---|
| 5.00 | $2,400 | $2,097 | $2,097 | $2,358 |
| 5.45 | $2,202 | $2,097 | $2,097 | $2,160 |
| 5.72 | $2,098 | $2,097 | $2,097 | $2,056 |
| 6.20 | $1,935 | $2,097 | $2,097 | $2,027 |
| 6.80 | $1,765 | $2,097 | $2,097 | $2,027 |
The forward and money market hedges give the same certain amount. The option is cheaper than the forward only if the real strengthens below about 5.61, and it gives up about $70,000 against the forward if the real weakens. Staying unhedged is the best choice only when the real strengthens, and at 6.80 it turns a profitable order into a loss.
Recommendation
The firm should sell the full 12 million reais forward through an NDF with its bank. The order's margin over dollar cost is thin, and the company is preparing a large capital decision on a Brazilian plant that will need its cash. Froot et al. (1993) argue that hedging adds value exactly in this situation: it keeps internal cash available for planned investment when outside funds would be costly. Allayannis and Weston (2001) found that U.S. firms using currency derivatives traded at a premium averaging close to 5 percent of firm value compared with similar firms that did not. The option is a reasonable choice only for a firm that expects the real to strengthen and can afford to lose about $70,000 against the forward if it is wrong.
Two practical points remain. Brazilian cooperatives sometimes pay a few weeks late after harvest delays, so the firm should ask its bank for a contract that can be rolled forward. And a single hedge treats only this invoice; with Brazilian revenue near 10 percent of sales, the firm also needs a standing policy, such as hedging confirmed orders and a share of forecast sales.
Conclusion
A 12 million real receivable worth $2.20 million today could be worth as little as $1.76 million in six months. Both the forward and the money market hedge lock in about $2.10 million, and the option sets a floor near $2.03 million while keeping the upside. Given a thin margin and capital needs ahead, the forward is the best choice for this invoice.
References
Allayannis, G., & Weston, J. P. (2001). The use of foreign currency derivatives and firm market value. The Review of Financial Studies, 14(1), 243-276. https://doi.org/10.1093/rfs/14.1.243
Bartram, S. M., Brown, G. W., & Minton, B. A. (2010). Resolving the exposure puzzle: The many facets of exchange rate exposure. Journal of Financial Economics, 95(2), 148-173. https://doi.org/10.1016/j.jfineco.2009.09.002
Froot, K. A., Scharfstein, D. S., & Stein, J. C. (1993). Risk management: Coordinating corporate investment and financing policies. The Journal of Finance, 48(5), 1629-1658. https://doi.org/10.1111/j.1540-6261.1993.tb05123.x
What the FIN 336 Module 3 instructions ask for
The FIN 336 Module Three assignment normally hands you a foreign currency receivable or payable, along with spot and forward quotes, interest rates for both countries and option prices, and asks how a firm could hedge it. You are expected to calculate the outcome of a forward hedge, a money market hedge and an option hedge, compare them with leaving the position open and choose one with a reason. Some versions ask you to explain the difference between transaction, economic and translation exposure first, and others add a question about whether hedging creates value at all. A table of outcomes under several possible future rates is the clearest way to show the comparison the directions are looking for.
How this FIN 336 Module 3 currency risk assignment example is built
The sample starts from a 12 million real invoice due from a cooperative in Rondonópolis in 180 days, with spot at 5.45 reais per dollar. It computes a 180-day non-deliverable forward of about 5.72 from Brazilian and U.S. rates, shows that borrowing reais through the São Paulo office produces almost the same dollar amount, and prices a put on the real with a 5.80 strike at a premium near $41,000. A payoff table runs each choice at five future rates from 5.00 to 6.80 and sets them against the order's $1.85 million of dollar costs. The paper recommends the forward for the full amount because the order's margin cannot survive a repeat of the 2024 fall.
Where the FIN 336 Module 3 rubric puts the points
Grading here usually rests on correct calculation of each hedge, accurate use of the quotes provided, a sound comparison across possible future rates, a recommendation supported by the firm's circumstances and clear explanation of the exposure being managed. The strongest papers show every formula with numbers, account for the option premium and its timing and explain why the forward and money market results nearly match. Submissions slip when they compare hedges at a single assumed future rate, ignore the premium, mix up which currency is being bought or sold, or recommend a hedge without saying why the firm needs one. A short section on practical limits, such as the real's non-deliverable status, earns credit in many rubrics.
FIN 336 Module 3 help: the mistakes that cost points
Mistakes in this assignment usually start with direction: the exporter is receiving reais and will sell them for dollars, so it needs a hedge that pays when the real weakens. Write that sentence first and every later step follows. Convert all three hedges to dollars received on the same date so they can be compared. For the money market hedge, borrow the present value of the receivable in the foreign currency, not the full amount, and say who can actually borrow it. For the option, subtract the premium, ideally grossed up for interest. Then build a table across a range of rates, including one severe case. Finish with a recommendation that names the firm's margin or cash need, since that is what makes one hedge better than another.
Get FIN 336 Module 3 written to your instructions
Send the FIN 336 Module 3 case with its amounts, dates and quotes. The sample prices each hedge from the figures you were given, lays the outcomes side by side and makes a recommendation tied to the firm's margin. Expect two days, and the first one is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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FIN 336 Module 3 questions, answered
Where can I find a free FIN 336 Module 3 Currency Risk sample?
The complete FIN 336 Module 3 paper is here: a 12 million real receivable hedged three ways, compared in a payoff table and settled with a recommendation.
What is a money market hedge?
Borrowing the present value of a foreign currency receivable in that currency, converting it at today's spot rate and investing the proceeds at home, then repaying the loan with the receivable when it arrives.
What is a non-deliverable forward?
A forward contract that settles only the difference between the agreed rate and the market rate in a convertible currency such as dollars, used for currencies like the real that cannot easily be delivered offshore.
When is an option hedge better than a forward?
When the firm wants protection against a falling currency but also wants to keep the gain if the currency rises, and is willing to pay a premium for that choice.
Does hedging increase firm value?
It can. Froot and colleagues argue hedging protects the cash a firm needs to invest, and Allayannis and Weston found that firms using currency derivatives traded at higher values.