Aspen Case Study

658 Words Mar 20th, 2015 3 Pages
MULTINATIONAL FINANCIAL MANAGEMENT
Groupe 5

Case study
ASPEN TECHNOLOGY INC.: Currency Hedging Review

1) What are Aspen Technology’s main exchange rate exposures? How does Aspen Tech’s business strategy give rise to these exposures as well as to the firm’s financing need?

The main exchange rates exposures are: British pounds, Deutsch Mark, Japanese Yen and Belgian Francs.
Aspen faces foreign currency risks due to sales and expenses in those foreign currencies. Expenses include R&D costs (20% of overall R&D are in UK), headquarters, sell force etc. and represent 52% of Aspen expenses.
If Aspen sells its products in local currency, it’s because its clients need to plan their P&L and don’t want to see their
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Per contra, the Belgian Francs is in SHORT position: the company will loose money if Belgian Francs appreciate.

3) What goal would you recommend for the firm’s currency risk management program? Why? Based on your goal, what types of exposure should Aspen be measuring?

The company has to hedge its cash flow when it is in financial distress. When looking at their account figures, we can’t see any progressive corporate taxes and the R&D doesn’t weight enough to say Aspen is in financial distress. Furthermore, the company doesn’t risk any default costs. There are no real arguments here to take into account the need of hedging cash flows.

Nevertheless, the company Aspen needs to hedge its account. Indeed, they are in the case of economic distress: they care about their image (they need to show their robustness to their customers), they want to show the stability of the company (smoothing the account figures rather than the cash flow), and even if they need cash, they want to avoid any impact to the clients.

4) Should the firm maintain its policy of completely eliminating all exposure on booked sales? If not, what policy would you advocate and why?

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