Hedging Currency Risks at Aifs

Abstract

SUBJECT AREAS: Currency, Foreign exchange, Foreign exchange rates, Hedging, Travel

CASE SETTINGS: London; Education industry; Travel industry; $200 million; 100 employees; 2004

The American Institute for Foreign Studies (AIFS) organizes study abroad programs and cultural exchanges for American students. The firm's revenues are mainly in U.S. dollars, but most of its costs are in eurodollars and British pounds. The company's controllers review the hedging activities of AIFS. AIFS has a hedging policy, but the controllers want to review the percentage of exposure that is covered and the use of forward contracts and options. AIFS sets guaranteed prices for its exchanges and tours a year in advance, before its final sales figures are known. The controllers need to ensure that the company adequately hedges its foreign exchange exposure and achieves an appropriate balance between forward contracts and currency options. To obtain executable spreadsheets (courseware), please contact our customer service department at [e-mail].