This website uses cookies to ensure you have the best experience. Learn more

Aifs Case Essay

1329 words - 6 pages

1. What gives rise to the currency exposure at AIFS?
American Institute for Foreign Study (AIFS) is a student exchange organization. It organizes exchange programs in education and culture throughout the world with two of its major divisions serving American students traveling abroad in the Study Abroad College division and High School Travel division. AIFS receives their revenues in American Dollars (USD) but incurs their costs and expenses in a foreign currency, mainly in the Euro (EUR) and the British Pound (GBP). AIFS’s currency is exposed to changes in the foreign exchange rate, therefore their gain or loss is determined by the appreciation or depreciation of the American dollar in the ...view middle of the document...

The Volume Risk
AIFS predicts its sales volume in advance based upon the data it has amassed over 40 years of doing cultural and educational exchanges. Using historical data is an effective way of estimating, but final sales will ultimately be different. It is impossible to accurately predict the exact increases or decreases in the amount of sales volume. Additional risks such as: news of war, terrorism, poor politics or any other uncertainties can affect the volume of sales. According to the case, sales at AIFS could drop up to 60% on such news. In the last 25 years four major events led to this drop: terrorism acts in 1986, the 1991 Gulf war, September 11 terrorist attacks and the War in Iraq in 2003.
When sales volume decreases AIFS is exposing their currency to a loss, if the exchange rate is unfavorable (out of the money) especially if they only have forward contracts. With options they will be able to exercise this instrument and wait for a favorable exchange rate in order not to lose money. If sales volume increases but the exchange rate is (out of the money) it will not affect the company when they buy currency to compensate for the extra volume however if the exchange rate is (in the money) AIFS will have to buy currency at a higher rate and hope that the increase in volume can offset the cost.
Competitive Pricing Risk
AIFS has a responsibility to provide fair prices to its loyal customers mainly composed of teachers and academic advisors who expect no sudden price increases (“surprises”) from AIFS. In order to maintain their 70% loyal customers AIFS guarantees their prices regardless of the currency rates and sales volumes. If rate changes depreciate the dollar AIFS must cover the cost. Without hedging their currency if the dollar depreciates AIFS will lose profits and customers to competitors if they must raise prices.

2. What would happen if Archer-Lock and Tabaczynski did not hedge at all?
If Archer-Locke and Tabaczynski did not hedge at all it would fully expose AIFS to currency risk. AIFS has the Study Abroad College division controlled by Archer-Lock who is also the treasurer as well as the Boston- Based High School Travel division whose finances are managed by Tabaczynski. The problem is that most of its revenues are received in American dollars (USD), but they incur their expenses in other currencies primarily Euro (EUR) and British Pounds (GBP). Without hedging AIFS might produce good results if: the American Dollar appreciates against the Euro or the British pound, sales volume is consistent and no other unforeseen costs are incurred. However exchange rates are extremely volatile, sales volume is unpredictable and the fact that AIFS guarantees their prices make hedging a necessity. For example, AIFS predicts sales to be 25,000 students and predicts the exchange...

Other Papers Like Aifs Case

Freedom And Responsibility Essay

2141 words - 9 pages amendment is “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercises thereof” (Jordan, 1999). Therefore, the first amendment states citizens have freedom of religion and exercises of the religion. The article entitled “Lawsuit alleges FBI violated Muslims’ freedom of religion,” published by Jerry Markon, Washington Post Staff Writer, justifies the detailed case of the FBI surveillance targeting Muslims for

Hate Crime Laws Essay

2348 words - 10 pages Death of James Byrd”). While this particular case may give the appearance that perpetrators of hate crimes receive appropriate punishment, almost a decade later, one particular case demonstrates the inequity in the application of hate crime punishments: In 2007, Sean Kennedy of Charleston, South Carolina, left a bar around 3:45 am and was confronted by Stephen Moller, who called him a “faggot” and then punched him so hard in the face that his

Rational Emotional Behavior Therapy Case Study Conceptualization And Treatment Plan

2140 words - 9 pages Rational Emotional Behavior Therapy Case Study of Sarah: A Conceptualization and Treatment Plan Rational emotive behavior therapy, REBT, was developed by Albert Ellis and holds the central belief that the events in our lives do not cause our disturbances but that they are instead caused by our view of the events (Murdock, 2009). Murdock (2009) states that “people are seen as responsible for their behavior” (p. 279) but, because they are

Holidays In Albania

1636 words - 7 pages Have you ever thought about having exciting and incredibly cheap vacations? Albania might be the right choice. According to My Travel Guide, Albania is ranked the fourth among ten places worth visiting in Eastern Europe (“Top 10 Eastern European Destinations”). One can encounter three kinds of vacations in this Mediterranean country: winter, summer, and cultural. The ideal places to spend your winter vacations are the Albanian Alps. They are

A Heart Of Darkness

1748 words - 7 pages In this short story, there are frequent significant subject and ideas that make the story, "A Heart of Darkness," by Joseph Conrad, and haunting novel. The main theme is absolute white power over the natives. The theme validates the corruption, and the dependence caused by the white people as they took over the Congo. White men were giving all the power; they had no self-control, and in the end they did not use wisely. The white men became

The Aspects Of Vulnerability Among The Exploited In Medical Research

2287 words - 10 pages proceeding examples. The Willowbrook Hepatitis Studies was a case in which individual rights were severed and respect for one’s autonomy was lost. In 1947, in Staten Island, NY, Willowbrook was opened. Willowbrook State School was a state-funded institution for developmentally disabled children intended to accommodate approximately 4,000. By 1965, that number reached a population high of about 6,000. This high population mixed with a short staff led

The Hitchhiker’S Guide To The Galaxy

1171 words - 5 pages The Hitchhiker’s Guide to the Galaxy As the human race makes life-changing discoveries, it is made apparent that there is always more to learn as the universe, instead of becoming familiar, is becoming absurd. The Hitchhiker’s Guide to the Galaxy, written by Douglas Adams, as well as the 2005 film adaption, portrays absurdity to be an all-encompassing system in the universe. Through the introduction and attempt to understand lack of reason, the

The Ford Motor Company Wage Increase Of 1914 And The Theory Of Incentives And Efficiency Wages

1252 words - 6 pages doubling these wages can only be justified if, in some other way, it generates an equal or superior amount of value (either through a better product, lower costs, or both). According to the theory of incentives and efficiency wages, this is indeed the case, and Henry Ford even asserted that this decision was one of the best-cost cutting judgements they ever made (Raff and Summers 1987). This paper will outline the history of Ford Motor’s 1914

Historical Analysis Of The Economical Breakthroughs Of The Industrial Revolution

1396 words - 6 pages revolution, capitalism was used as the dominant form of economy in England. This helped England’s economy become consistent and organized throughout the country. However, it also posed certain, significant, problems. In order for the perfect capitalism to be achieved, every citizen had to begin equal. This was not the case, as many descendants of nobility and very early entrepreneurs started England's switch to capitalism with a lot more money than most

Leadership Portrayed in Monologue from Shakespeare’s Henry V

1214 words - 5 pages for their family and their country’s reputation. (Jacqueline and Milton, 2012)In real life case, a successful leader usually has good communication skill when talk to followers, people cannot influence their team members without connect communication to them. Language is a most powerful tool used by leader to manage and influence people in different industries. (Seargeant, 2009) Henry’s speech with unlimited energy and confidence, he cheers up

Cuba Civil Rights

1906 words - 8 pages Oct 2013. "World Report 2013 Cuba."Human Rights Watch.Human Rights Watch, 2013.Web. 14 Oct 2013. Wylie, Lana. "The Special Case of Cuba."International Journal 67.3 (2012): 661-84. ProQuest.Web. 9 Oct. 2013. "2012 Human Rights Reports: Cuba." U.S Department of State Diplomacy in Action.Bureau of Public Affairs, 19 04 2013.Web. 14 Oct 2013.

Related Essays

Aifs Case Analysis

743 words - 3 pages could mean big trouble for the firm as a going-concern. More specifically, in their case, if the USD($) depreciates, AIFS stands to lose money. Their revenues are less exposed due to the fact that most of the revenues are denominated in USD($). The same cannot be said about expenses, which are mostly denominated in foreign currencies and make AIFS’s bottom line fluctuate more. 3) If AIFS were to hedge against currency risk using 100

Hedging Currency Risks At Aifs Essay

723 words - 3 pages strengthened versus the euro, less the cost of the contracts. An analysis of AIFSs hedging strategy if sales volume are lower (10K) or higher (30K) than the expected sales volume (25K) reveals that whenever sales volumes are lower(Exhibit A) , the costs of using Forward contracts are higher in case spot exchange rates are less than the locked in forward price. This is because AIFS has to honor the forward contracts beyond the 10 K sales

Hedging Currency Risk Essay

1859 words - 8 pages The American Institute for Foreign Study (AIFS) is an organization, which helps enable American students to travel abroad. The main service AIFS provides entails organizing educational and cultural exchange problems across the globe. As the case explains, AIFS has split their business into two major divisions that that serve American student’s studying abroad; the Study Abroad College division and the High School Travel division. The college

Academic Writer Essay

2024 words - 9 pages government and the indigenous communities making their engagement difficult. This case provides the fact that the government relationship with the aboriginal communities is more complicated that it is depicted from the engagement with the Wiradjuri people. This is clearly depicted by Marika and colleagues (2009) who outline the difficulties Yolngu people face while trying to engage with government as they maintain their cultural integrity. They argue