62750007-Aifs-Excel.xls

Hedging Currency Risks at AIFS Harvard Business School Case 205-026 Course Software 205-703 This course software was prepared solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2004 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without the permission of Harvard Business School.

Original exchange rate Cost per participant :

1.22 1000 pounds

Final volume:

25000

% Cover

Contracts 100% 100% 0%

0% 100% 0%

Options : 5% Zero impact cost 30,500,000

Options 100% 0% 0%

Total Cost USD Exchange Rate (USD/EUR) 1.01 1.22 1.48 26,512,500 32,025,000 33,550,000 30,500,000 30,500,000 30,500,000 25,250,000 30,500,000 37,000,000

Gain/loss -1,262,500 ######## -5,250,000 0 High Sale volume

4,975,000 6,500,000

30000

% Cover

Contracts 100% 100% 0%

0% 100% 0%

Options 100% 0% 0%

Total Cost USD Exchange Rate (USD/EUR) 1.01 1.22 1.48 31,815,000 38,430,000 40,260,000 36,600,000 36,600,000 36,600,000 30,300,000 36,600,000 44,400,000

Gain/loss -1,515,000 ######## -6,300,000 0

Low Sale volume

5,970,000 7,800,000

10000

% Cover

Contracts 100% 100% 0%

0% 100% 0%

Options 100% 0% 0%

Total Cost USD Exchange Rate (USD/EUR) 1.01 1.22 1.48 26,512,500 32,025,000 33,550,000 30,500,000 30,500,000 30,500,000 25,250,000 30,500,000 37,000,000

Gain/loss -1,262,500 ######## -5,250,000 0

4,975,000 6,500,000

Compared to Zero Impact

-3,987,500 1,525,000 3,050,000 0 0 0 -5,250,000 0 6,500,000

* gain loss = - min(strike price-spot price,0) - prenium

Compared to Zero Impact

-4,785,000 1,830,000 3,660,000 0 0 0 -6,300,000 0 7,800,000

Compared to Zero Impact

-1,595,000 0 -2,100,000

610,000 1,220,000 0 0 0 2,600,000