Currency hedging at aifs essay sample q1 what gives rise to the currency exposure at aifs currency exposure is the extent to which the future cash flows of an enterprise, arising from domestic and foreign currency denominated transactions involving assets and liabilities, and generating revenues and expenses, are susceptible to variations in foreign currency exchange rates. Hedging currency risks at aifs, harvard business school case, #9-205-026, 2007 instructions: this case should be done individually you should prepare a written analysis, and hand in two copies of your analysis on april 23 in class. International finance 1 case presentation hedging currency risks at aifs objectives the case provides an introduction to how currency mismatches create exposures, why companies hedge those exposures and how they hedge those exposures. Aifs always have currency risk because all the trips are out of the country for educational and cultural programs throughout the world aifs has a great feature that it publishes its catalog yearly and guarantees that its prices will not change before the next catalog. The primary objective of this website is to display my skills to prospective employers due to my educational background, i possess extensive financial planning & analysis, financial modeling, capital budgeting, enterprise valuation, and forecasting skills.
Aifs has a hedging policy, but the controllers want to review the percentage of exposure that is covered and the use of forward contracts and options aifs sets guaranteed prices for its exchanges and tours a year in advance, before its final sales figures are known. Hedging currency risk at aifs: assignment questions: q what gives rise to the currency exposure at aifs a aifs is a company that specializes in providing educational and cultural exchange programs for college and. Question prof lin guo fin 417 hbs case: hedging currency risks at aifs due date: april 23, 2013 where to get the case: hedging currency risks at aifs, harvard business school case, #9-205-026, 2007. From option pricing to value at risk from asset liability management to treasury profitability analysis financial risk excel spreadsheets simplify our lives and make it possible for us to generate and test answers and analysis.
And based on a project undertaken in 2004 with john bird at bank of america's fx risk management advisory group to establish an active hedging program, h-p also incorporated some advanced analytics to guide hedging decisions and analyze both balance sheet and cash flows exposures and hedging performance. Powerpoint slide show for chapter 7 of advanced accounting - foreign currency hedging and translation. Hedging currency risks at aifs harvard case study solution and analysis of harvard business case studies solutions - assignment helpin most courses studied at harvard business schools, students are provided with a case study. Introduction: hedging, by acharya et al(2009) is described as a manner of reducing and eliminating the level of exposure to risks inherent in commodities, foreign currencies and financial assets it would aim to minimize or dampen the effect of prices and rates volatility on a firm's profit, generated by currency or financial risk. The management of madesco incorporation is exposed to the risks of exchange rates and if in future the exchange rate of the company which is the usd depreciates in value relative to the deutsche mark then it is going to cost a lot for the company.
In order to limit or eliminate this risk, aifs has to hedge their currency exposure at the moment the company hedges 100% of their exposure using forward contracts and currency options. Hedging currency risks at aifs harvard business school case 205-026 course software 205-703 this course software was prepared solely as the basis for class discussion. Currency hedging is the use of financial instruments, called derivative contracts, to manage financial risk it involves the designation of one or more financial instruments as a buffer for. 62750007-aifs-excelxls hedging currency risk at aifs (balance sheet) they were not included in gm s hedging policy commercial exposure (capital. Prof lin guo fin 417 hbs case: hedging currency risks at aifs due date: april 23, 2013 where to get the case: hedging currency risks at aifs, harvard business school case, #9-205-026, 2007.
Aifs uses two different pricing decisions for the college and high school travel divisions both programs take into account their cost base, competitive pricing and the hedging activities the college division worked from july 1 to june 30, or the academic planning year. Hedging currency risk at aifs essay summary aifs is an american based company that offers travel abroad and exchange study services to both college and high school students while aifs's revenues are denominated in american dollars (usd), most of their costs are in foreign currencies as euros (eur) and british pounds (gbp. If aifs were to hedge against currency risk using 100% forward contracts, their position would be fully covered if they can accurately predict the amount and timing of the payments if aifs were to hedge using 100% options, they would be fully covered against currency risk, but would pay an option premium of $1,525,000. In order to hedge its foreign exchange exposure, aifs can use an appropriate balance between forward contracts and currency options to achieve the goal the case with no hedging if the exchange rate remains constant at $122/euros then aifs will not incur a foreign exchange loss or a gain.
Hedging currency risks at aifs problem statement: the problem identified in this case is, to determine that which option is best in different scenarios with respect to the fluctuation in exchange rates. Hedging is a strategy to protect one's position from an adverse move in a currency pair forex traders can be referring to one of two related strategies when they engage in hedging a forex trader. Business world as of today presents a huge amount of various risks to almost every company or entrepreneur i'm sure that also your company faces at least some of these risks: foreign currency.