Walt disney companys yen financing - 1838 Words

CASE STUDY THE WALT DISNEY COMPANYS YEN FINANCING Alexandra Molnà ¡r Laure Vigneron Manuel Aguilee Pimprapai Lertamornkitti Pranav Goyal EXECUTIVE SUMMARY Walt Disney, an American leisure and entertainment company, receives royalty payment from Tokyo Disneyland every year. The royalties were denominated in yen and were constantly growing and becoming significant for the company (8 billion Yen in 1984, with 10-20% projected growth). However, the depreciation of the yen against the dollar could incur the risk of devaluation on the royalties to be received, indicating that Walt Disney should perform hedging. Different solutions are available. First is to (1) buy options to sell yens for dollars or to buy dollars with yen. However this†¦show more content†¦Anderson to hedge this risk of foreign exchange. Mentioned below are the different options that were available for Mr. Anderson to hedge this risk. First solution that the company could have used is to buy/sell options. But the problem Mr. Anderson faced for this was the short-term nature of this solution. Indeed, such options existed with at best a maturity of two years, which was not good enough for the timescale he was considering (10 years horizon). The Future Contracts option, which would permit the Walt Disney Company to exchange Yens against Dollars at a pre-defined rate (and would protect them from the on-going depreciation), is apparently the same issue: it is impossible to find contracts with maturities of more than two years. The Walt Disney Company could have entered a foreign currency swap as they did last year by trying to convert part of their dollar debt into a yen liability. This type of hedge was short-term since Disneys Eurodollar note issues matured in one to four years. The problem regarding such hedging was first it was very difficult to find attractive yen swap rates for such maturities (one to four years), and secondly it would not provide any additional cash to Disney, which is something Mr. Anderson was looking for. That short-term issue could have been dealt with FX forward contracts. Unfortunately, the banks would consider these contracts as a part of their total exposureShow MoreRelatedWalt Disney Company’s Yen Financing Case Essay4601 Words   |  19 PagesIntroduction: The Walt Disney Company is the largest media conglomerate in the world and is headquartered in Burbank, California, USA. It was established by Walt and Roy Disney in 1923. Since its inception, Disney has grown vastly so that operational areas now include theme parks, motion pictures, television dramas and consumer products. In 1955, the most charming place in the world was ‘Disneyland’ was open for the public. The idea was to create a magical place for the whole family. EverRead MoreThe Walt Disney Companys Yen Financing, Harvard Case Study1352 Words   |  6 Pagesthat it becomes more expensive to buy  ¥ and more expensive to buy the foreign import. Risk can work both ways: if the ex-rate is 125 ¥ / $ (dollar appreciates, Yen depreciates) in 6 months, the cost is only $800. In this case, the dollar got stronger, so it became cheaper to buy Yen, and the foreign product (priced in a fixed amount of Yen) became cheaper. Ex-rate volatility (currency risk) means the cost of parts could range between $800-1250 over the next 6 months for the U.S. manufacturer. ImagineRead MoreWalt Disney Case2290 Words   |  10 PagesThe Walt Disney Company’s Yen Financing International Financial Economics Universiteit van Amsterdam Question 1 Should Walt Disney Company hedge its yen exposure? Why? On April 1983 Tokyo Disneyland started to operate. The Japanese company that operated this park paid royalties on certain revenues to Walt Disney Productions. 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