Hedging Currency Risks At AIFS

3336 words 14 pages
PLEKHANOV RUSSIAN ECONOMIC UNIVERSITY
INTERNATIONAL FINANCIAL MANAGEMENT

Case Study REPORT
Hedging Currency Risks
At AIFS

Professor: Yulia Y.Finogenova

Performed by: Budeanu Diana Gabaydullin Ilnar Kulikova Ekaterina Malev Mikhail Content:

Introduction and problem statement…………….

Identification of major risk factors:
Risk assessment..........................................................
Map of
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This method can be used to manage volume risk.

➢ Forward contracts – another portion could be hedged by forward contracts.

This represents a purchase (or sale) of foreign currency at a specific date in the future. This hedging technique can give the company the certainty of how much operating currency it would need to pay (or would receive).

AIFS’s Shifting Box

• The ultimate success of hedging activities, depended on 2 variables: - final sales volume & the ultimate market value of USD

• Thus the relationship between these 2 variables was summarized by company’s management with two-by-two matrix, called “AIFS shifting box”

Case Highlights:

1. AIFS received most of its revenues in American ($) but incurred its cost primarily in Euros (€) and British Pounds (£)

2. AIFS hedged 100% of its future cost commitments up to 2 years in advance with a combination of currency forwards and currency option contracts.

Hedging Scenarios: Further on we will try to answer to the 3 main issues that AIFS faces in the process of risk management due to the nature of its business: 1. Should the organization hedge or bear the risk of exchange fluctuations? 2. What % of the expected costs should they cover? 3. In what proportions should AIFS use forwards and options?

Existence of the second and third questions depends on positive answer for the first question. The answers

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