What gives rise to the currency exposure at aifs

Reference no: EM131194117

Case - Jotikasthira

Please use the spreadsheet .xlsx to help guide your calculation.

Case questions:

1. What gives rise to the currency exposure at AIFS? What are the two random variables that Archer-Lock and Tabaczynski have to deal with?

2. What would happen under the three exchange rate scenarios if Archer-Lock and Tabaczynski did not hedge at all? Use the forecast sales volume of 25,000.

3. Repeat your analysis in question (2) with (a) a 100% hedge with forwards and (b) a 100% hedge with options. Again, use the forecast sales volume of 25,000. Analyze the outcomes relative to the "zero impact" scenario described in the case (where rate = USD 1.22/EUR). For simplicity, please assume that the forward rate is 1.22, the option's strike price is also 1.22, and the option premium per EUR is 5% of the strike 1.22.

4. Fill completely the table in Exhibit 9. Analyze different levels of hedge coverage and different mixes of forwards and options. Which strategy would you prefer? Explain briefly.

5. Repeat your analysis in questions (2) to (4) under the high-volume and low-volume scenarios outlined at the end of the case. Note that hedge coverage is based on the forecast sales volume of 25,000 but the actual realized volume differs from the forecast. Which strategy would you prefer under each volume scenario? Why?

6. Considering all possibilities, what hedging decision would you advocate? Briefly discuss your criteria.

7. You expect that American students are more (less) likely to study abroad if USD is strong (weak). Of course, you do not know whether USD will be strong or weak against EUR in the future but you know that if USD is strong (weak), the sales volume is likely to be high (low). Under this assumption, how would you change your answer to question (6)?

8. You believe that AIFS' competitors do not hedge currency risk (and as a result set their prices based on the USD/EUR exchange rate at the time of sale). And, since students are price-sensitive, AIFS' sales volume is likely to be high (low) if its prices are better (worse) than the competition. Under this assumption, how would you change your answer to question (6)?

Attachment:- Assignment.rar

Reference no: EM131194117

Questions Cloud

Create and validate html documents : Create and validate HTML documents. Create presentations using Cascading Style Sheets and DHTML. Write clearly and concisely about Web design and development using proper writing mechanics and technical style conventions.

Print technology in late 15th century on the roman empire : Outline the changes brought out by print technology in late 15th century on the Roman Empire and the art industry to a large extend.

Managing resistance to change : Explain how managers can effectively deal with change

What are obamas most notable achievements : Looking back on Obama's presidency, what are his most notable achievements? Has he delivered on the famous slogan 'Yes We Can' preceding his ascent to the White House?

What gives rise to the currency exposure at aifs : What gives rise to the currency exposure at AIFS? What are the two random variables that Archer-Lock and Tabaczynski have to deal with

Calculate the potential difference on the three cylinders : calculate the potential difference on the three cylinders. Assume current densities are uniform in each cylinder.

Explain rise of al qaeda religious militancy and terrorism : Describe and explain the rise of Al Qaeda, religious militancy and terrorism, and how they use the Internet and the media as a tool and weapon.

Create and validate html documents : Create presentations using Cascading Style Sheets and DHTML. Summarize Web standards in terms of specifications, guidelines, software, and tools. Write clearly and concisely about Web design and development using proper writing mechanics and technica..

Problem-solving process : "Problem-Solving Process" Please respond to the following: Share a personal experience or an experience that you know about regarding the fair process. Complete the following tasks:

User Account

All Pages