Disney yen financing case solution

Read the article I upload, and do the questions, which is in the file. It is a group assignment. My part is question 4, so you just do the question 4. It should be a half page, so do not write many words. Total appendices are 6 pages. There are three people in our group, so my job are 2 pages.Case Study Walt Disney’s Yen Financing In 1985, the Walt Disney Company undertook an intriguing global financing deal. In a single chain of transactions involving parties based in New York, Paris and Tokyo, Disney simultaneously raised funds in USD, partially hedged a JPY royalty stream, and became the first US corporation to issue a sinking-fund ECU bond in the Euromarket. This case demonstrates the financing flexibility available to corporate treasurers sourcing funds on a global scale and shows also how currency swaps can be used as a hedging technique. In order to understand the case’s fundamental issues you first need to be familiar with the following concepts:the global bond market, the ECU (http://fx.sauder.ubc.ca/ECU.html), operating exposure, FX hedging, and foreign currency swaps. Any decent international-finance textbook should provide a succinct exposition of the underlying financial concepts and techniques. You might also want to consult the Note on Foreign Currency Swaps and make sure you understand their mechanics which are similar to the roundtrip arguments (CIA, Money Market Hedge). Finally, obtain a clear understanding of Disney’s decision problem. For this purpose you should discuss the following questions and issues in your group: 1. Should Disney hedge its JPY royalty cash flow? Explain. If so, how much should be hedged and over what time frame? 2. Assuming a hedge is desirable, what hedging techniques are available to the treasurer and what are the advantages and disadvantages of each? 3. Why do you think does a market for currency swaps exist given the many other techniques for hedging currency exposure? What value does the swap create for Disney and what risks might be involved? 4. Evaluate financing alternatives, especially the ECU bond issue accompanied by an ECU/JPY swap. How does its all-in cost1 compare to that of the proposed JPY term loan? Is it superior to hedging using outright forwards? Disney’s finance director, Rolf Anderson, is considering two different alternatives and has invited two banks to present their solution: Sumitomo bank (the JPY term loan) and Goldman Sachs (the ECU bond with swap). 1 All-in cost refers to the annualized discount rate that equates the present discounted value of future debt service payments with the financing proceeds less up-front fees. It is a financing strategy’s annualized internal rate of return. You are part of the currency and interest rate risk analysis team in Disney’s Finance Division. Your boss, Rolf Anderson, has decided to go with the ECU Eurobond cum swap alternative but needs to explain this long-term financial strategy to the Disney Board of Directors who are leaning toward the JPY term loan solution. This is unsurprising: many of the members of the board of directors are entertainment industry experts but have little financial expertise and are not familiar with the intricacies of managing foreign exchange exposure.