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Dozier Industries Case Study

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Dozier Industries
Dozier industries specialized in electronic security systems, which experienced growth through military sales. After experiencing stiff competition, it branched to another market. This market was one of designing systems for the private sector, specifically homes and small businesses. This change led to decrease growth and decrease profits. Dozier then moved to serve larger corporations which then proved to be profitable and promoted growth. Dozier considered expanding their sales internationally. They hoped the contract they acquired would be profitable itself with opportunities for expanding the contract.
The pound had dropped before the bid, and then the bid was accepted. Dozier wanted to find out ways it could minimize foreign exchange risk. The firm had to options to contemplate, either to hedge or do nothing. In matters of hedging it could engage in a forward contract or a spot transaction.
Dozier would sell its pounds forward to secure a fixed rate. This would secure a fixed rate but it may end up as a loss, as the pound may increase as well and not decrease as expected. The spot transaction would work similarly, in that it would have to exchange the pounds in 90 days. This option would allow it to benefit from the transaction if the pound increases vs. dollars.
Southeastern national bank would ease any decision made by Dozier since it gave Dozier a $3 million credit line. This loan would include a 1.05% above U.K prime rate. When it made the bid, Dozier only allowed for a profit of 6 percent when winning the bid. And the payment for this bid was reflected as pounds.

Dozier knew that the amount that it would receive could drastically change, so much that it could leave it at a loss. It also knew that hedging involved some expenses as well.
If no action is taken unhedged position works as well. The exhibits should be taken into

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