Analysis of Currency Risk Management - Case Study Example

The organization has two key branches; the Study Abroad College branch, and the High School Travel branch. Archer-Lock is the controller and also the treasurer of the college branch. Tabaczynski manages the finances of the high school division. The college division sends students to worldwide universities for the semester duration activities. Also, the high school division sends students and teachers for trips lasting between one and four weeks (Mihir, Vincent & Anders 1)). The currency hedging measures protect the revenue and profitability of AIFS, from the negative effects of currency exchange rates.

This is achieved through the currency forward contracts, in addition to other currency options. The organization hedged its predicted expenses duration for the next two year duration. The main financial challenge that AIFS experienced entailed, implementing the hedge before the full sales cycle and adequate determination of the required foreign currency. There are several basic hedging approaches for handling the foreign currency exchange rates. The techniques are; currency options, forward contracts, currency accounts and loans, and spot trading.

All organizations that operate in the international market must analyze the effects of exchange rates changes, on their operations. This will result in determination of the most effective technique for minimizing the foreign exchange fluctuations (Mihir, Vincent & Anders 3). Currency accounts are the most basic hedging technique. The bank accounts are opened in foreign currencies. This is most suitable for organizations with continuous inflow and outflow of cash in foreign currencies. Currency involves borrowing money using a foreign currency.

The loan will be serviced in future, through the same currency. Spot trading involves key foreign currencies transactions. Spot transactions are generally applied in