MBA624_case03_analysis - Harvard Business Review Case Aspen...

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Aspen Technology, Inc.: Currency Hedging Review (Brief Analysis) How does Aspen Tech create foreign exchange rate exposure? To market its software in large, industrialized non-US markets, Aspen Tech offers its products to customers in local currency. Were the firm to set all its prices in US$, and merely give customers the convenience of paying annual license fees in local currency (at spot prices), then the customers would bear all the currency exposure. However, the company offers fixed prices in these currencies, at least over the life of the contract. Aspen Tech does not necessarily bear all the fluctuations in exchange rates. The case states that the firm had raised prices three times in seven years, and they felt that in the long-run customers were not terribly price-sensitive. The firm probably has some exposure to exchange rate fluctuations even where it sells to customers in US$. There, while the dollar price of unit sales is not affected by currency fluctuations, the number of units sold might be, if local currencies depreciate. How large are Aspen Tech's foreign exchange exposures? Exhibit 5 can be used to establish a rough sense of the firm's "natural" exposure (w/o any specific hedging). If Aspen Tech hedged none of its currency risk, and if its local currency operating expenses and revenues were fixed, the exhibit can be used to calculate whether the firm was long or short Pounds, DM, BFr, and Yen. The next two tables show the currency exposure that the firm would experience with respect to its accounting earnings and its cash flow. Aspen Tech's Accounting Exposure
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MBA624_case03_analysis - Harvard Business Review Case Aspen...

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