Hedging Currency Risks at AIFS

*What are the causes of the currency exposure at AIFS?
*What would result if Archer-Lock and Tabaczynski did not hedge at all?
*What would happen with a 100% hedge with forwards? A 100% hedge with options? Use the forecast final
sales volume of 25,000 and analyze the possible outcomes relative to the ‘zero impact’ scenario described in
the case (i.e. no change in the exchange rate).
*Given the choice of (1) Do nothing — exchange at the spot rate; (2) Use 100 % forwards; (3) Use 100 %
options, what do you think Archer-Lock and Tabaczynski should do? Explain your reasoning.

Sample Solution