Abstract
The focus of this case is a Canadian company with mostly US dollar sales and Canadian dollar costs operating in a flexible exchange rate environment. It is also undergoing a major expansion of its facilities. The operating and foreign exchange risk induce the firm to sell forward almost US$1 billion in order to hedge anticipated US revenues. The company also engages in extensive US dollar debt financing. Subsequently, Great Lakes' revenues are affected by both price effects and very large volume effects that effectively both reverse its exposure and call into question whether or not there would be sufficient foreign revenues to fulfil the contracted forward sales of foreign currency. The pedagogic value of the case is to lead the student through the critical issues involved in ‘hedge’ accounting. The company actually deferred all gains and losses on its medium-term forward contracts, even though its revenue decline called into question its ability to meet its forward commitments from actual sales. The stu...
Published Version
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