99%(71)70 out of 71 people found this document helpful
This preview shows page 1 - 3 out of 9 pages.
Derivatives MarketsHedging Currency Risks at AIFSCase Study Report – Final ExamSubmitted to:Professor Haruyoshi ItoSubmitted by:Name:Do Thi Hien ThuongID:2B6015Executive Summary
American Institute for Foreign Study (AIFS)’s main business if to organize education and cultural exchange programs throughout the world. AIFS received most of its revenue in USD, but incurred its costs in other currencies, mainly EUR and GBP. AIFS has two main divisions: College and High School Travel. Each division has different customer segmentation, catalogs, pricing andhedging activities. College division started its hedging activities in earnest in January, six monthsprior to a main pricing date. High School Travel division hedges throughout the year to match with various sales deals.AIFS faced three types of risk: (1) bottom-line risk – the risk that an adverse change in exchange rates could increase the cost base; (2) volume risk as foreign currency was bought based on projected sales volumes that could differ from final sales volume; and (3) competitive pricing risk as AIFS could not transfer rate changes into price increases.AIFS’s counterpart, Becky Tabaczynski, worked on a comprehensive model that covered differentscenarios to identify the consequences of different hedging strategies. She decided to focus first