The following questions are based on Hedging Currency Risks at AIFS (HBS 9-205-026).
Your report should be based on the following questions. You should form your groups for all group assignments. I allow you to indicate your groups with names of group members. Only one person should submit this assignment
1) What gives rise to currency exposure at AIFS?
2) What would happen if Archer-Lock and Tabaczynski did not hedge at all?
3) What would happen with a 100% hedge with forwards? A 100% hedge with options? Note: you do not need to price the options for this caseinstead, consider the payoffs associated with the three possible realizations of exchange rates in Exhibit 9. Use the forecast final sales volume of 25,000 and analyze the possible outcomes relative to the zero-impact scenario described in the case. What happens if sales volumes are lower or higher than expected?
4) What hedging decision do you advocate?
Only one student should submit the case for the group. Make sure that you form a group for the assignment and include ALL members of your group in this assignment group. When I mark your case the score will be credited to all members in the group.
