Case study report - Derivatives Markets Hedging Currency Risks at AIFS Case Study Report Final Exam Submitted to Professor Haruyoshi Ito Submitted by

Case study report - Derivatives Markets Hedging Currency...

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Derivatives Markets Hedging Currency Risks at AIFS Case Study Report – Final Exam Submitted to: Professor Haruyoshi Ito Submitted by: Name: Do Thi Hien Thuong ID: 2B6015 Executive 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 and hedging activities. College division started its hedging activities in earnest in January, six months prior 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 different scenarios to identify the consequences of different hedging strategies. She decided to focus first

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