This Case is about Finance

Publication Date: 01/20/2009

In 2007, an analyst in the derivatives group of investment bank Grenfeld & Co. was requested to formulate a hedging strategy for Providence Equity Partners (Providence) in Bell Canada Enterprises (BCE Inc.). Providence was based in America and any strategy would entail substantial foreign exchange rate risk as a result of conversion of yields into U.S. dollars. The analyst needed to contemplate several long term hedging strategies that Grenfeld & Co. could urge to Providence. Her vice president requested that she create a hedging strategy by initially assuming a 25 per cent IRR for the investment and its operation, based on two results at the end of the investment (investment horizon = five years): a zero per cent IRR and a 25 per cent IRR.

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