Devise a strategy so that the NY Cheese Company can protect itself Case Study

Devise a strategy so that the NY Cheese Company can protect itself against foreign exchange risk - Case Study Example Thirdly, is the continuous assessment of the program’s success in order to improve the system. Fortunately, there are ways that the NY Cheese Company can hedge its risks. One way is by hedging the cash flow since it only impacts the balance sheets rather than the income statements over the life of the hedge (Jain 20). In the case of NY Cheese Company that buys cheese from the Chinese company and pays for the same using the US dollars, then it means that the foreign company will have to purchase the local currency to cover its costs. If there is a fluctuation in the dollar against the Yuan, then it means that the foreign company will have to increase the cost of the cheese exported to the NY Cheese Company in order to cover for the same. Hence, the best solution for the NY Cheese Company is to pay for the cheese supplied by the Chinese Cheese Company in local currency; thus, manage the foreign exchange risks on its own. Secondly, the NY Cheese Company can go for a short dated forward contract, which is quite effective as compared to the cash flow hedging. The main reason why f orward contracts are effective is that they are easy to execute; hence, they are flexible enough and can be rolled over into a new hedge after the completion of the period. If the NY Cheese Company manages to use the future contract a way hedging the foreign exchange risks, then it means that the company will be able to increase its revenue since there would be a reduction in the costs involved when there is a fluctuation in the currency. Similarly, the company will not have to worry about price instability. This is because the Chinese company will be obligated by the contract to sell cheese at the stipulated amount without putting into consideration the current spot rate of the dollar against the Yuan. This is the main reason why it is advisable for the NY Cheese Company to use the forward contract as a way of hedging the foreign exchange risks since it is