There are several factors that give rise to currency exposure at AIFS. One of the reasons AIFS hedges currency is to protect themselves from. In order to limit or eliminate this risk, AIFS has to hedge their currency exposure. At the moment the company hedges % of their exposure using forward. Request PDF on ResearchGate | Hedging Currency Risks at AIFS | SUBJECT AREAS: Currency, Foreign exchange, Foreign exchange rates.

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Now Becky Tabaczynski, CFO of one of the main divisions, is creating a model, including different scenarios, with the goal of identifying which proportion of the exposure should be hedged at all and in which proportion forward contracts and currency options should be used for hedging.

In consequence of the fluctuating exchange rate of USD against foreign currencies and the fact that AIFS fixes the price for their services before the costs can be estimated, the firm faces an inevitable currency exposure. Business and Environment Business History Entrepreneurship.

It was still unclear though how fast customer demand for robust compliance programs would affect the competitive dynamics. Sorry, but copying text is forbidden on this website. In the case of a strong dollar 1.

Suppose the company has fixed ajfs prices for the current season and now the costs in Europe are one million euros, while the exchange rate is at 1.

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AIFS sets guaranteed prices for its exchanges and tours a year in advance, before its final sales figures are known. George Serafeim and Shannon Gombos.

Comparing the results of the table riwks the advantages and disadvantages of each strategy. We use cookies to give you the best experience possible. This would simplify the hedging approach and it would be reasonable the business model of AIFS forces them to keep foreign exchange every year. The dollar remains stable 1. To obtain executable spreadsheets coursewareplease contact our customer service department at custserv hbsp.


How about receiving a customized one? Due to their business model the revenues of afis company are denominated only in USD, since the offer is for American students who pay in USD. Your Answer is risos helpful for Us Thank you a lot! To what degree should NG drive change on its own in order to achieve customer differentiation vs.

Using only forward contracts to hedge results into no impact on the costs in any case since the exchange rate is fixed no matter what happens and there is no initial cost entering the contract. Accessed December 31, Since the company is highly affected by news of war, terrorism and political instability, events which are impossible to predict, I would suggest to alter their hedging policy and use mainly options for hedging.

The impact on the uedging if nothing hevging hedged arises merely from the difference in the spot rate and is much stronger than in the hedged case. Options instead would give the company more flexibility, which is a major issue since not only the exchange rates fluctuate but also the volume of participants.

Hedging Currency Risks at AIFS

Thus costs would increase by The higher the costs turn out, the higher this negative effect would be in nominal amount. Click to learn more https: In any case the option premium has to be added to the costs. If you contact us after hours, we’ll get back to you in 24 hours or less. Finance Globalization Health Care. Their customers have the possibility to go abroad while the AIFS organises the whole trip for them.

And if the spot rate at expiry is less than the strike price, AIFS can forget about the option and buy for the lower spot rate.

The company’s controllers review the hedging activities of AIFS. In this way AIFS would fix the costs for a quarter of their exposure and still be flexible enough to react to different market circumstances and unforeseen events.


Riss the costs of the company is mostly denominated in foreign currency because AIFS has to pay the transport, the hotel and much more in the countries in which their customers are travelling, hence the firm has to pay in the local currency of these countries.

The possible outcomes in the two described strategies and a scenario with no hedge at all are summarized in the table below. Hi, I am Sara from Studymoose Hi there, would you like to get such a paper?

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. Having brought employees on board, he was planning to relentlessly engage customers, regulators, and security agencies. In the first column the proportion of the hedged amount is given and in the second and third column of the table the proportions of forward contracts and currency options used to hedge are listed respectively.

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Hedging Currency Risks at AIFS by Zachary Connolly on Prezi

Harvard Case Study If the dollar weakens against the euro and the exchange rates rises to 1. And what role, if any, should values and religious faith play in shaping the firm’s products and conduct? Instead of derivatives, an alternative possibility for AIFS to hedge their currency exposure would be to set up accounts abroad in ccurrency currency up to a certain amount.

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