Hedging Currency Risks At Aifs Case Study Solution

Introduction

The AIFS stands for the American Institute for Foreign Study, which offers the cultural exchange programs in its affiliated universities, to students from all over the world. Approximately, 50,000 international students are sent by AIFS for cultural and education exchange programs every year, in different universities around the world. AIFS was originated by the Sir Cyril Taylor in the year 1964. It has two main divisions, which are:

  1. College division.
  2. High school travel division.

AFIS receives its revenues in United States Dollars (USD), however the operational costs associated with other countries are consisted of Euros (EUR) and Sterling Pounds (GBP). As always, the currency risk is associated with  AIFS, because for  cultural and educational exchange programs, students are supposed to travel from one country to another, which needs a continuous  exchange of one currency to another. The exchange of currencies carry high risk, in the form of depreciation of one currency against another as well as the appreciation of one currency against another. In addition to this, AFIS publishes its catalog on annual basis, which guarantees that the prices associated and mentionedin this annual catalog, will not change for the entire year, despite the changes occurring in the foreign exchange rates.

Currency Exposure at AFIS

Cash presentation or foreign trade hazard occurs when the exchange is not done in the currency of the home country, but is done  by using the currencies of various nations. It incorporates monetary exchange. In this manner; it is a money related hazard. On the off-chance if an outside auxiliary of an organization doesn’t keep up its fiscal summaries in the revealing cash of the parent organization at this point, there is a threat of negative development in the conversion scale, which will bring about contrast between the two monetary forms. Swapping scale hazard can have budgetary effects, however basic advance can be taken overseas, which decreases the intensity of the hazard.

Kinds of Exposure:

Transaction Presentation

The exchange presentation otherwise is called as momentary financial introduction, which is a hazard that results because of an agreements being exposed to remote trade exposures, in which the organization has just entered. An exchange introduction can be on the business exchange’spurchase side or sell side, for an organization………………………

 

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