Hedging Currency Risks at Aif

1085 Words Apr 11th, 2013 5 Pages
ACFI 703
March 27, 2013

Hedging Currency Risks at AIF
The American Institute of Foreign Studies (AIFS) is a company that organizes student exchange programs worldwide with two main divisions. The College Division arranges academic years and semesters or summer schools. The High School Division organizes 1-4 week educational travels for students and teachers. More than 50,000 students participate each year in exchange programs of AIFS, which leads to annual revenues of around $ 200 million. AIFS receives most of its revenues in US-Dollars, whereas most of its costs incur in foreign currencies, mainly in Euros and British Pounds. This is why they use currency hedging in order to protect their bottom line.
The college division had
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Cost is relatively high and leave no profit margin. They will loss $2,748,800. Sales volume is relatively low to drive the profit up. They had a windfall loss on volume totaling $3,366,000. Cost is higher than revenues.

The worst outcome for the sale of only 30,000 trips will be options at a exchange rate of 1.48, The expected loss is $541,400. The sale volume is too large and exchange rate is really weak. The gain from sale volume is not enough to cover the loss of weak currency.

8.
|25,000 Trips |1.234 |1.01 |1.48 |
|Cost(10,000 trips forward,