Aspen Technology, Inc. Currency Hedging Review

1796 WordsMar 12, 20118 Pages
Executive Summary Aspen has become a public company withmore risk adverse investors who want to invest in the core business of the firm and not assume any foreign exchange risk. Foreign exchange risk is a core risk to Aspen’s business because they have many customers outside of the United States. We believe that transferring this risk to the customers would limit Aspen’s growth on the foreign markets: Aspen should keep its current marketing strategy, which includes credit installment payments and payments in local currencies for Japan, the UK and Germany. The current risk management program hurts the company because it doesnot consider Aspen’s expenses abroad that balance sales exposures to currency fluctuations. We then recommend that…show more content…
This move would cut Aspen’s exposure to cash flow risk, but it would be a sign of bad faith with their customers. The customers have freedom to make installment payments and do not have to worry as much about their own risk exposure in these transactions (although any company making foreign transactions will always be open to accounting risk exposure and foreign exchange rate exposure). Also, billing in local currency is also a way for local companies to compare offers more easily with competitors. Not doing so could decrease Aspen’s growth abroad. While Aspen could reduce its foreign exchange exposure by reducing the amount of installment payments or by using other methods, this may not sit well with their current customers who may in turn reduce orders and find other suppliers in order to reduce the risk or the heavy costs that Aspen’s choices would leave with them. Because foreign exchange risk is a core risk for Aspen and has been managed fairly well until this point, we see no reason for them to overhaul their business model and risk alienating their customers. Foreign Exchange Exposure While we assume that 50% of German sales are still made in DM, in 1995, 25.9% of Aspen’s 1995 revenues are made in foreign markets, but only in Japan, in the UK and in Germany (increasingly) has the firm priced its products in local currencies. That means that, about 23.8% of Aspen total sales are made in foreign currencies, implying a foreign

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