| Course | BUS 495 International Business |
|---|---|
| Module | Module 5 |
| Paper type | Currency exposure analysis |
| Length | About 1,060 words, 6 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | Business Administration |
| Updated | October 2026 |
Free sample paper for BUS 495 Module 5
The Same Wheel of Cheddar, 27% Fewer Dollars: Exchange Rate Exposure and a Hedging Plan for a Vermont Cheese Exporter
Student Name
Business Administration Program, Aspen University
BUS 495: International Business
Instructor Name
Month Day, Year
The Same Wheel of Cheddar, 27% Fewer Dollars: Exchange Rate Exposure and a Hedging Plan for a Vermont Cheese Exporter
Green Mountain Hollow Creamery, a composite cheese maker in northern Vermont, produces about 150 tonnes of aged cheddar a year. A third of its output goes abroad. A Tokyo specialty importer buys 18 tonnes a year under a contract first signed in 2021 that sets the price in yen, because the importer would not accept dollar prices. Grocers and cheese shops in Quebec buy about 30 tonnes a year at prices listed in U.S. dollars. Between 2021 and 2024, the creamery's export volumes held steady in Japan and fell in Canada, yet its export earnings dropped sharply. The cause was not cheese but currency. This paper explains what happened, measures the creamery's exposure and recommends how to manage it.
What Happened to the Exchange Rates
The table reports annual average exchange rates published by the Federal Reserve (Board of Governors of the Federal Reserve System, n.d.), expressed as units of foreign currency per U.S. dollar. A higher number means a stronger dollar.
The dollar strengthened by about 38% against the yen from 2021 to 2024 and by about 9% against the Canadian dollar over the same years. These are large moves for a firm whose margins on export cheese are around 15%.
| Year | Japanese yen per dollar | Canadian dollars per U.S. dollar |
|---|---|---|
| 2021 | 109.84 | 1.2533 |
| 2022 | 131.46 | 1.3014 |
| 2023 | 140.50 | 1.3494 |
| 2024 | 151.46 | 1.3699 |
| 2025 | 149.57 | 1.3973 |
Why Currencies Moved
Purchasing power parity holds that exchange rates should adjust so that a basket of goods costs the same in different countries. If American prices rise faster than Japanese prices, the dollar should weaken to compensate. In 2022 and 2023, American inflation was much higher than Japanese inflation, so parity would have predicted a weaker dollar, yet the dollar rose. Rogoff (1996) reviewed decades of evidence and found that deviations from parity are large and fade slowly, with half-lives commonly estimated at three to five years, far too slow to be explained by price stickiness alone. In the short run, other forces dominate. The most important in this period was the difference in interest rates: the Federal Reserve raised rates sharply from 2022, while the Bank of Japan kept its rates near zero, which made dollar assets more attractive and pushed the yen down.
Transaction Exposure in Japan
Transaction exposure is the risk that exchange rate changes alter the value of payments already agreed in a foreign currency. The Tokyo contract sets a price of 2,600 yen per kilogram. In 2021, at 109.84 yen per dollar, each kilogram brought the creamery 2,600 divided by 109.84, or about $23.67. In 2024, at 151.46 yen per dollar, the same kilogram brought about $17.17, a fall of 27%. On 18 tonnes, or 18,000 kilograms, annual revenue from Japan fell from about $426,000 to about $309,000. The importer paid exactly what it had agreed; the creamery lost about $117,000 a year because it had accepted the currency risk.
Economic Exposure in Quebec
Economic exposure is broader: it is the effect of exchange rates on future sales and competitiveness, even when prices are set in the home currency. The creamery's Quebec price of $14.00 per kilogram did not change in dollars, so there was no transaction loss. But Quebec grocers pay in Canadian dollars. At 1.2533 in 2021, $14.00 cost them about 17.55 Canadian dollars; at 1.3699 in 2024, it cost about 19.18, an increase of 9.3%. Competing cheddars from Ontario and Quebec dairies did not become more expensive. Two grocery chains reduced their orders, and Canadian volume fell from 34 tonnes to 30. The dollar price looked safe on paper, but the exposure was real.
How Firms Manage Exposure
Bartram et al. (2010) investigated why studies often find surprisingly small exchange rate exposure in the stock returns of firms that clearly trade internationally. They found that firms reduce exposure in three ways that work together: passing part of currency changes through to customer prices, matching costs and revenues in the same currency through operational choices, and hedging with financial instruments such as forwards. Exposure appears small because firms manage it, not because it is absent.
A forward contract fixes today the rate at which a firm will exchange currency on a future date. Covered interest parity links the forward rate to the spot rate and the two countries' interest rates. With a spot rate of 150 yen per dollar, a one-year dollar interest rate of 4.5% and a yen rate of 0.5%, the one-year forward rate is 150 multiplied by 1.005 and divided by 1.045, or about 144.3 yen per dollar. Because yen interest rates are lower, the forward rate favors the yen, so an exporter selling yen forward gains a little compared with today's spot rate.
Recommendation
The creamery should take four steps. First, it should hedge about 70% of the next twelve months of expected yen receipts with forward contracts through its bank, rolling the hedge each quarter, so that most of its Japanese revenue is known in dollars while some flexibility remains if volumes change. Second, when the Tokyo contract renews, it should seek dollar pricing or, if the importer refuses, a currency adjustment clause that resets the yen price whenever the exchange rate moves more than 8% from a reference rate. Third, in Quebec, it should publish a Canadian dollar price list reviewed each quarter, accepting some transaction exposure in return for protecting volume. Fourth, it should report export margins monthly in both currencies so the owners see exposure before it becomes a loss.
The plan has costs and limits. Forward contracts cannot be undone without cost if the Japanese contract ends early, and they would produce a loss on the hedge if the yen strengthened. The plan protects against currency moves over the next year, not against a lasting shift in competitiveness, which only product quality, pricing and new markets can address.
Conclusion
Between 2021 and 2024, a stronger dollar cost Green Mountain Hollow Creamery roughly $117,000 a year in Japan and several tonnes of sales in Canada. Theory explains why currencies stayed away from parity, and research shows that firms limit such damage by combining pricing, operations and hedging. A modest program of forwards, smarter contract terms and closer monitoring would give a small exporter the protection it lacked.
References
Bartram, S. M., Brown, G. W., & Minton, B. A. (2010). Resolving the exposure puzzle: The many facets of exchange rate exposure. Journal of Financial Economics, 95(2), 148-173. https://doi.org/10.1016/j.jfineco.2009.09.002
Board of Governors of the Federal Reserve System. (n.d.). Foreign exchange rates: G.5A annual. https://www.federalreserve.gov/releases/g5a/
Rogoff, K. (1996). The purchasing power parity puzzle. Journal of Economic Literature, 34(2), 647-668.
What the BUS 495 Module 5 instructions ask for
Aspen lists exchange rates and the global monetary system among the topics that make international business different in BUS 495, so a module on currency usually asks students to explain exchange rate movements and their effects on a firm. Follow the Module 5 prompt your instructor posts; this example interprets it as an exposure analysis for one exporter. Report actual exchange rate data with its source and dates. Explain why rates move, using recognized theories such as purchasing power parity or interest rate parity. Distinguish the types of exposure a firm faces and measure them with numbers. Describe the tools available for managing exposure, including financial hedges and operational choices such as pricing currency. Recommend a plan suited to the firm's size and risk tolerance, and say what it costs and what it does not protect against.
How this BUS 495 Module 5 example is built
The paper opens with Green Mountain Hollow Creamery's sales: 18 tonnes a year to Japan under a yen price and 30 tonnes to Quebec at dollar prices. A table reports Federal Reserve annual averages for yen and Canadian dollars per U.S. dollar from 2021 to 2025. Purchasing power parity and Rogoff's Journal of Economic Literature review explain why currencies stray from it for years. Transaction exposure is worked for the yen contract, from $23.67 per kilogram in 2021 to $17.17 in 2024. Economic exposure is shown in Quebec, where the same dollar price cost grocers 9.3% more Canadian dollars, and orders fell. Interest rate parity yields a one-year forward rate of about 144 yen. Bartram, Brown and Minton's findings lead to a plan combining forwards, dollar pricing and a price adjustment clause.
Where the marks sit in the BUS 495 Module 5 rubric
A currency paper is read for four qualities: data that are right, theory that is used properly, exposure that is measured plainly and a plan a real firm could follow. This example cites the Federal Reserve's annual series directly and keeps the units consistent, always stating rates as foreign currency per dollar. Each calculation, from dollars per kilogram to the forward rate, is written out with its inputs. Theory is used to explain observed movements rather than recited in the abstract: Rogoff's review explains slow adjustment toward parity, and Bartram, Brown and Minton's Journal of Financial Economics article explains why firms combine pricing and hedging. The recommendation is sized to a small firm, with a hedge ratio, a contract clause and limits stated plainly. Clear distinctions between transaction and economic exposure earn analytical credit.
Common BUS 495 Module 5 mistakes, and how to avoid them
Many Module 5 papers confuse the direction of exchange rates. Decide on one convention, such as yen per dollar, and state it, then check that a stronger dollar means a larger number in your table. Another frequent error is treating hedging as a way to make money; a hedge locks in a rate and can produce a loss on the contract when the currency moves in the firm's favor. Explain both sides. Use official data rather than a currency converter screenshot, and give the period it covers. Distinguish exposure on contracts already signed from the broader effect of rates on future competitiveness. Keep the plan proportionate; a small exporter rarely needs complex options. Finally, show the arithmetic for at least one example so the reader can see the size of the problem the plan is meant to solve.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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BUS 495 Module 5 questions, answered
What does BUS 495 Module 5 usually ask for?
Aspen's BUS 495 covers the global monetary system and exchange rates in this module, so a paper explaining currency movements and their effects on a business is typical. Follow your classroom instructions.
What is transaction exposure?
The risk that exchange rate changes alter the home-currency value of payments already agreed in a foreign currency, such as receivables from a signed contract.
What is purchasing power parity?
The idea that exchange rates should adjust so that the same goods cost the same in different countries; research shows that actual rates can stay away from parity for years.
Where can I find a free BUS 495 Module 5 sample paper?
The complete analysis is shown above: a Vermont cheese maker's yen and Canadian dollar exposure, with Federal Reserve rates in a table, worked calculations and a hedging plan.
How does a forward contract work?
The firm agrees today to exchange a set amount of currency at a fixed rate on a future date, which removes uncertainty about that payment's value in dollars.