HBS Case: Hedging Currency Risks at AIFS Essay

Instructions This case should be done individually. You should civilize a written analysis, and hand in two copies of your analysis on April 12 in class. Only hard copies of the case analysis be accepted. I entrust submit one of the copies to the Deans side for assessment purpose. Each student should also bring his/her own replica of the write-up to class, as well as the case itself, so that we can confabulate to the specifics in our discussion. The text analysis of your case should be about 3-5 pages (double-spaced). You should transfer the excel spreadsheet for the case at the Blackboard, complete the quantitative analysis use the spreadsheet, and attach the spreadsheet to your case write-up to support your arguments.Your write-up should begin with an opening paragraph that defines the of import problem in the case and your recomm supplanted solution. The remainder of your paper should support your expiration and recommendations. This support should be based on your defin ition of the problem and inferences that you slide by from the facts of the case. Structure is important for your argument to be lucid and transparent.The grading will be based on the quality of your analysis and writing. Points will be deducted for grammar mistakes and typos.Your case should address the following questions1. What gives rise to the currency exposure at AIFS?2. What would happen if Archer-Lock and Tabaczynski did not hedge at all?3. What would happen with a 100% hedge with forwards? A 100% hedge withoptions? function the forecast last(a) sales volume of 25,000 and analyze the possible outcomes recounting to the zero impact scenario described in the case.4. What happens if sales volumes are debase or high than expected as outlined at the end of the case?5. What hedging decision would you advocate?Key ProblemThe American Institute for Foreign Studies (AIFS) organizes study abroad programs and cultural throws for American students. The unwaverings revenues are m ainly in U.S. dollar signs, but most of its be are in euros. AIFS sets guaranteed prices for its exchanges and tours a year in advance, before its final sales figures are known. If the dollar depreciates against the Euro during this period, AIFSs cost would be higher when measuring in dollars, and negatively impact the firms profit. In order to hedge its foreign exchange exposure, AIFS can use an grant balance between forward contracts and currency options to achieve the goal.The Case with No HedgingIf the exchange appreciate remains constant at $1.22/euros wherefore AIFS will not incur a foreign exchange release or a gain. It would cost $1220 per participant at this exchange rate. If the dollar depreciates against euro, the actual dollar costs would be above $1220, and then thither would be a negative impact. If actual dollar costs were lour than expected, the impact would be positive. Thus, with a sales volume of 25,000 participants and the exchange rate rises to $1.48/euro s then AIFS will be subject to a loss of $4,391,892. If the exchange rate drops to $1.01/euros then AIFS will save $5,198,020.