Aifs Case Analysis

AIFS

Issue/Decision If a company is working with unknowns, such as exchange rates between currencies and the standings of the economy a year or two in the future, how can we fairly and accurately calculate prices for student trips 2 years’ time in the future that could remain unchanged and still maintain relativity and accuracy without hurting the company and without being an unnecessary expense for the student? Given that the prices we are looking for can be for a time period that is up to 2 years in the future, it is impossible to know exactly what the fluctuations for the currency exchange rates will be. AIFS must calculate how many students to expect on their trips in order to know just how many times they will be exposed to foreign exchange caused by the differences in costs and revenues under various scenarios. The company must also compare their results of each scenario evaluation using multiple hedging implementations - forwards and options in an effort to determine the fairest choice of whether or not they should hedge or how much, and which method of hedging is appropriate.

Strategic Framework AIFS is a company that works as a middle man of sorts for students who are looking to study or travel abroad. These trips need to be considered and paid for in advance so that students rarely still have issues to square away while they are abroad. In order to maintain that things are taken care of in a timely manner, AIFS issues their trip booklets up to a year in advance. The prices printed in these booklets are guaranteed to remain unchanged until a new booklet is issued. When looking into AIFS’s business model and how they work to produce this program booklet, a lot must go into account for the numbers. AIFS works mostly with students in the United States that are paying a fee in U.S. dollars for a trip that is to be funded primarily in Euros or British pounds. In order to give future prices we need to be aware of such things as the exchange rates between...