CASE ANALYSIS

Submitted By: Group 6

Aayush Kansal
Abhirup Sengupta
Abhishek Batra
Parth Dhingra
Sakshi Negi
Anisha Patni
Anjan Prakash
Introduction

AIFS founded in the US in 1964

Sent more than 50,000 students per year on academic and cultural exchange programs worldwide
Currency mismatches
Revenues in USD
Costs in other countries
Two main divisions
Study Abroad College Division
High school Travel division
Other Divisions
Au Pair Division
Comp America Division
Academic Year in America
Pricing
Catalog-based business
No price surprises
Case Analysis

2 different pricing decisions for college and high school travel decisions
Both programs inclusive of base cost, competitive pricing and hedging activities
ACIS catalog contained about 35,000 prices combining tours, seasons and departure
gateways
3 Types of Risk
Bottom Line: Adverse change in exchange rates increase cost base
Volume Risk: Trade off between projected and final sales volume
Competitive Pricing Risk: Inability to transfer rate changes into price increases
Why AIFS bears the FX Risk?

Traveling exchange students: Affected by exchange rate and currency

movements

Overseas political events

Competitors hedging strategy

Fluctuations and volatility in USD, pound or euro

 Hedging with 100% Options

Cost Cost / student Revenue Profit

Cost @ 0.9 23,625,000 945 35,000,000 11,375,000

Cost @ 1.2 31,500,000 1260 35,000,000 3,500,000

Cost @ 1.5 39,375,000 1575 35,000,000 (4,375,000)

All figures in USD

No Hedging

Cost Cost / Revenue Profit

student

Cost @ 0.9 22,500,000 900 35,000,000 12,500,000

Cost @ 1.2 30,000,000 1200 35,000,000 5,000,000

Cost @ 1.5 37,500,000 1500 35,000,000 (2,500,000)

All figures in USD

100% Hedge with Forwards

Total Cost Remains same for all the 3 cases i.e. $30,000,000
(USD)

Total Revenue: $35,000,000 (USD)

Total Profit: $5,000,000 (USD)

Strategic Analysis

do
100%
nothin 100% forward
options
g

0.9 125 50 110

1.2 50 50 35

1.5 -25 50 35

All figures in 100,000 USD

THANK YOU