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Hedging Currency Risks At Aifs Case Solution & Answer

Hedging Currency Risks At Aifs Case Study Analysis

Introduction

AIFS stands for the American Institute for Foreign Study, which organizes the cultural and educational exchange programs in their universities. AIFS sends approximately 50,000 students on cultural and education exchange programs in different universities across the world, every year. AIFS was originated by the Sir Cyril Taylor in the year 1964. It has two main division, which are:(Mihir A. Desai, 2007)

  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 comprised of Euro (EUR) and Sterling Pounds (GBP). Like always, the currency risk is associated with AIFS, because the cultural and educational exchange trips occur from one country to another, which needs a repeatedly exchange from one currency to another. This factor carries high risk in the form of depreciation of one currency against another and appreciation of one currency against another. In addition to this, AFIS publishes its catalog on an annual basis, which guarantees that the prices associated and attached with this yearly catalog will not change around the year, despite the changes in the foreign exchange rates.

Currency Exposure of Hedging at AIFS

Christopher Archer-Lock is the head of the department and treasurer at the foreign university, and Becky Tabaczynski is the finance director of the college’s travel department. The two parties talk on  phone every day, to protect the firm against the exchange rate risks. The total cost of AIFS comes in and out of the United States, and generates revenue in dollars. On the other hand, even if other currencies appreciate against the US dollar; AIFS assures the customers that the prices will not change…………………………….

 

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