AIFS Case Study

The goal of this case is to help Sandra Meyer develop a presentation to address Henry Bosse’s concerns about international investments. The general idea is to demonstrate to Henry the benefits of international diversification, if any. To achieve this goal, you need to have a view on 1) the impact of foreign exchange (FX) rates on the return and risk of international investments, and 2) the impact of having more assets on the return and risk of the investment portfolio To form views on these two points, answer the following questions: I. The impact of FX rates on the risk and return of foreign investments 1a) Using data in Appendix A, calculate the

The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months

When an input (machinery, components, capital, labor, etc.) is denominated in a foreign currency, the risk exists that an unfavorable exchange rate movement will increase the cost of doing business. When the products are priced and sold in a foreign currency, an adverse exchange rate movement will make the product appear more expensive to consumers, decreasing demand or forcing the company to reduce its own profit margin to maintain lower price levels. For companies with integrated international business systems, an exchange rate shock can literally force them out of business, with their operations experiencing pressures from both cost and profit centers.

Founded in 1968, IATI started as a group of actors who met to produce plays in NY. In 1970, IATI was incorporated as a NY-based non-profit for producing plays in Spanish.

From my school days I have bitter memories of going through various tests to show my daily learning in every mid and end of term test. These tests were mainly recall-based testing which made me feel that my memory was tested rather than my understanding. Furthermore the scores were very important to each student. Every student’s scores were at the entrance of the classroom, which meant that all of the students could see everyone else’s score. On the contrary I never got feedback to support our learning further. Therefore, I was not fully on board with the idea of using assessment as the foundation of learning and teaching the curriculum. Seeing ‘Assessment is for Learning’ [AifL] used in practice has shifted my views on assessments, as it was

Fluctuations in foreign exchange rates may have an adverse impact on profitability and cause cash flow to be somewhat unpredictable for budget planning purposes.

AIFS wants to offset any change in the exchange rates that may adversely affect their profit margins by using currency forward contracts and currency options. These hedging activities work to offset the three types of risk defined above as bottom-line risk, volume risk, and competitive pricing risk. Since these hedging activities must be put in place two years before the actual year of sales, AIFS must decide the proportion and cost

This paper discusses how companies are managing the foreign exchange risk through the use currency options. For instance, some companies who didn’t not take risk management seriously had resulted in inefficient use of capital, increased liabilities, and reputation risk. Moreover, a lack of certainty can cause confusion as to what a company’s acceptance of risk is, such as a level of acceptance. Without risk management, a company can become overconfident in its methods, which could lead to a financial crisis. The failure to objectively take risks leads to bad results like a company taking inappropriate risks not in the best long-term interests of the firm. Furthermore, poor risk management in finance could amount to

There is also risk of volatility with respect to exchange rates in the short and long term

* AIFS organizes educational and cultural exchange programs throughout the world. AIFS receives most of its currencies in American dollars (USD but it incurs costs in other currencies mainly in Euros (EUR) and Pounds (GBP).

Given the nature of its business, Jaguar is faced with three types of exchange rate exposure (1) Transaction, (2) Translation and (3) Economic . Transaction exposures arise whenever the firm commits (or is contractually obligated) to make or receive a payment at a future date denominated in a foreign currency. Translation exposures arise from accounting based changes in consolidated financial statements caused by a change in exchange rates. In this case we primarily focus on the Economic exposure -also known as Operating exposure or Competitive exposure- of Jaguar.

Exhibit 7 from the case study describes the currency development in medium term of the GBP and EURO against the dollar. We can observe that the currencies are exposed to high volatility, which means the company may register greater risk

Moreover, because of the huge worldwide extension of the corporation, which operates in 194 countries, the use of foreign currency derivatives to minimize the earnings volatility would be the subject of later analysis. The report will focus on how Nestlé uses futures and option contracts to hedge its exposure to currency risk, centering our attention in Nestlé Home Currency, the Swiss Franc in relation to the US Dollar (USD/CHF). It will be examined an example of its hedging strategy and the information provided by a contact in the firm.

In September of 2001 General Motors (GM) was faced with a billion dollar exposure to the Canadian dollar. At the time, North America represented approximately three-quarters of GM’s total sales and this large exposure to the CAD could significantly affect GM’s financial results. GM had a passive strategy of hedging 50% of its exposure; this paper explores the impact of hedging 75% of the exposure.

• Financial management effort: To minimize the risk of exchange-rate fluctuation and transactions processes of export activity the financial management needs more capacity to cope the major effort