guess who?, page-33

I understand your concern DV and it is valid.

I worry about the cash flows actuall occuring that you are talking about hedging.

For me it is a sensitivity thing -

If no cash flows occur then a hedge is not needed.

If USD $3m comes from eBio then a 10% move in AUD/USD gains or loses us about $300k - meaningful but not as meaningful as getting the $3m in the first place.

Managements problem is what should they hedge?

At this stage they know eBio are putting it in their products but the first sales probably occur in the current quarter with Q1 or Q2 2013 the first full quarter of sales. On this basis they won't be sure of how much to hedge till the 2nd half of next year. If 2 or 5 or 10 more customers sign up in that 12 months - then how much do they hedge?

What is the direction is wrong - ie the US could have a better year next year as the political uncertainty dissapears and the fiscal cliff gets kicked down the road. I am actually even on the event risk globally at teh moment - ie the tail events in Europe are balanced by the potential positives out of China and teh US. Base case is more of the same though.

What if manaement got too confident and put a forward hedge in place @ 1.04 and sales underperformed and the AUD dropped 10% and they closed out the hedge for a loss - that would also upset holders.

I think they will put in a rolling hedge program or zero cost collars once they are sure of some cash flows and then any new products or signatures remain unhedged till they are sure.

In the next little while I would want them to hedge too but not over the medium term - I think the AUD could easily go 10 or 20% either way from here.

It is a valid question to be put - but I am sure the answer will be something like - 'when we are sure of consistent hedgeable cash flow we will put a policy in place . . . etc"