Report Of International Financial Management
International Financial Management
ACPANA BUSINESS SYSTEM INC: EFFECT OF CURRENCY EXPOSURE ON REVENUE
1. Introduction and background
Acpana Business Systems Inc. is a Canadian software development and backup-as-a-service provider. Recently, the company faced with the phenomenon which was the appreciation and volatility of Canadian dollar was affecting Acpana’s revenue significantly and undermining the growth of the company to a certain degree. Brenzel, the CEO of Acpana, was worried that the fluctuation of the current exchange rate will affect the company.
More specifically, Acpana sold its products through the internet directly to the customer and its partner program. The company charged US dollars and Canadian dollars in two websites separately. As the Canadian dollar fluctuates customers would cancel their account on one brand and move it to other, which would help customers save the money, but on the other side, it would reduce the revenue of Acpana’s. Although Acpana made a profit on its foreign exchange transactions, its revenue in each year decreased. However, Brenzel will get a recommendation from Rob Schenkel, vice president of operations for Acpana Business Systems Inc., for a hedging strategy.
2. Assumption
1) During the transaction, there are no exchange fees and transaction fees.
2) Suppose that the company will process the 3-month period contract or option.
As we know from the case, the spot rate Cdn$/ US$ =0.9731, for 3-month period, the forward rate is 0.97510/ US$, it can buy a put option with the strike price 0.97510/US$ at 1.7150% premium.
3) Don’t consider default risk within transactions or contracts.
4) Choosing the opportunity of each scenario equals to 1/3.
3. Analyze the question about the best hedging strategy
Assume that Acpana will need to transfer $200,000 US dollars to Canadian dollars on a regular basis, calculate the impact of these different hedging strategies against a naked position at:
Scenario 1. 1 Cdn$=1
ACPANA BUSINESS SYSTEM INC: EFFECT OF CURRENCY EXPOSURE ON REVENUE
1. Introduction and background
Acpana Business Systems Inc. is a Canadian software development and backup-as-a-service provider. Recently, the company faced with the phenomenon which was the appreciation and volatility of Canadian dollar was affecting Acpana’s revenue significantly and undermining the growth of the company to a certain degree. Brenzel, the CEO of Acpana, was worried that the fluctuation of the current exchange rate will affect the company.
More specifically, Acpana sold its products through the internet directly to the customer and its partner program. The company charged US dollars and Canadian dollars in two websites separately. As the Canadian dollar fluctuates customers would cancel their account on one brand and move it to other, which would help customers save the money, but on the other side, it would reduce the revenue of Acpana’s. Although Acpana made a profit on its foreign exchange transactions, its revenue in each year decreased. However, Brenzel will get a recommendation from Rob Schenkel, vice president of operations for Acpana Business Systems Inc., for a hedging strategy.
2. Assumption
1) During the transaction, there are no exchange fees and transaction fees.
2) Suppose that the company will process the 3-month period contract or option.
As we know from the case, the spot rate Cdn$/ US$ =0.9731, for 3-month period, the forward rate is 0.97510/ US$, it can buy a put option with the strike price 0.97510/US$ at 1.7150% premium.
3) Don’t consider default risk within transactions or contracts.
4) Choosing the opportunity of each scenario equals to 1/3.
3. Analyze the question about the best hedging strategy
Assume that Acpana will need to transfer $200,000 US dollars to Canadian dollars on a regular basis, calculate the impact of these different hedging strategies against a naked position at:
Scenario 1. 1 Cdn$=1