Request PDF on ResearchGate | Hedging Currency Risks at AIFS | SUBJECT AREAS: Currency, Foreign exchange, Foreign exchange rates. There are several factors that give rise to currency exposure at AIFS. One of these is the fact that most of their revenues are denominated in. In order to limit or eliminate this risk, AIFS has to hedge their currency exposure. At the moment the company hedges % of their exposure using forward.
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The text analysis of your case should be about pages double-spaced. 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.
Hedging Currency Risks at AIFS by Zachary Connolly on Prezi
Using only forward contracts to hedge results into no impact on the costs in any case since the exchange rate is fixed no matter what happens and there is no initial cost entering the contract. In addition the company should continue to deal with 6 different banks to reduce the counterpart risk.
Could Arabesque be something different in the world of asset management? This case should be done individually. Osmundsen was convinced that his turnaround strategy would be effective. George Serafeim and Shannon Gombos. An advantage of this strategy is that AIFS does not have to bear any costs entering the forward contracts, but on the other hand, it will neither make a profit in case the dollar strengthens nor will it suffer a loss in case the dollar weakens.
HBS Case: Hedging Currency Risks at AIFS Essay Example for Free
We will write a custom sample essay on HBS Case: 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.
Options instead would give the currenfy more flexibility, which is a major issue since not only the exchange rates fluctuate but also the volume of participants.
Business and Environment Business History Entrepreneurship. The biggest stake of the costs are in euro and pound sterling, hence these two currencies are of major concern. The grading will be based on the quality of your analysis and writing.
Hedging Currency Risks at AIFS
A more flexible but meanwhile more expensive strategy to hedge is only using currency options. Cite View Details Educators Purchase.
If you need this or any other sample, we can send it to you via email. Suppose the company has fixed the prices for the current season and now the costs in Europe are one million currenxy, while the exchange rate is at 1.
So if the spot rate at expiry is higher than the strike price, AIFS can exercise their option and buy foreign currency for the lower strike currecny. Instead of derivatives, an alternative possibility for AIFS to hedge their currency exposure would be to set up accounts abroad in foreign currency up to a certain amount.
Since the company is highly affected by news of war, terrorism and political instability, events which are impossible riskd predict, I would suggest to alter their hedging policy and use mainly options for hedging.
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We’ll occasionally send you account related and promo emails. The company’s controllers review the hedging activities of AIFS. In the case of a strong dollar 1.