Aifs Case Study

Hedge Currency Risks at AIFS

1 . The final revenue volume as well as the final buck exchange rate gives rise to the currency exposure risk. Rates are established 1 year ahead of time so any fluctuation in the exchange price will potentially cause a loss or personal savings to AIFS when the currency is exchanged.

2 . If the exchange rate is still constant at $1. 22/euros then AIFS will not incur a loss or a gain. It would expense $1220 per participant with this exchange rate. If actual dollar costs were over this level, then there would be a negative effects. If real dollar costs were below expected, the effect would be positive. Thus, having a sales amount of 25, 000 participants and the exchange rate rises to $1. 48/euros then AIFS will be controlled by a loss in $4, 391, 892. If the exchange rate drops to $1. 01/euros then AIFS will save $5, 198, 020.

3. With a 100% forward hedge under a last sales volume of 25, 500 participants, AIFS is faced with a dollar influx of $25, 000, 000. Under this assumption, the optimal amount of expenses would be 1000 Euros per scholar. Risk occurs when forex rates between the Euro plus the dollar vary. From the Euro perspective, there is 25 mil Euros in underlying exposure. If twenty-five million Euros were bought forward at the 1 . 22 $/euro price, then 35. 5 million dollars will probably be sold. If the contract was signed in June 2004, then one year 30. five million us dollars can be put in for twenty-five million Euros, leaving a net location of zero Euros and 30. your five million dollars (100% forward hedge). With this forwards hedge, AIFS is completely mitigating the exchange rate risk between the money and the Euro, and are hence protected by losing money in the event the exchange price approaches 1 ) 48$/Euro. With a 100% choice hedge,

5. The higher or perhaps lower sales volume could exaggerate no matter what gains or perhaps losses AIFS will understand. We are able to utilize the AIFS changing box to determine what the reactions to differing sales quantity versus the exchange rate. If the volume can be low...



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