Hedging Currency Risks at Aifs

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Specific Issues of International Finance Term Paper Case Study Analysis: Harvard Business School Case Hedging Currency Risks at AIFS Submitted to: Professor Ted Azarmi, PhD Julia Pöschel Student ID: 169609 26th January 2012 1 Table of contents Table of contents ..................................................................................... 2 Introduction .............................................................................................. 3 AIFS Activities and Business Model ..................................................... 3 Types of Risks .......................................................................................... 5 Basic Hedging Techniques ...................................................................... 5 Hedging at AIFS ...................................................................................... 6 Conclusion ................................................................................................ 9 References ............................................................................................... 10 2 Introduction In today’s world where everything is connected, companies such as global players operate worldwide. Due to that they are all confronted with currency exchange changes which can have a huge impact on their business. Currency hedging is a possibility to protect themselves against currency exchange fluctuations. The Harvard Business School Case “Hedging Currency Risks at AIFS” deals with the student exchange organization American Institute for Foreign Study (AIFS). The group faces currency risks due to the fact that it receives most of its revenues in USD but most of its costs incur in EUR and GBP and at the same time it guarantees that its prices will not change before the next catalog, even if changes in currency exchange rates alter its cost base. By reason that

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