1 Voyages Soleil Dr. Greco Finance 570 Presented by: Chao Jiang Jungho Park Prabhu Palanisamy Robert Prime Vernace Wong

2 Agenda Canadian Tourism Industry Company Background Case Details & Issues Alternatives & Decision Criteria Assessment Recommendation Q & A

3 Tourism The activities of a person outside his or her usual environment for less than a specified period of time and whose main purpose of travel is other than the exercise of an activity remunerated from the place visited. Chadwick (1994)

4 Tourism Three different types of tourism Inbound international tourism Outbound international tourism Internal tourism

5 Canadian Tourism Industry Tourism is big industry in Canada Average growth rates > 8% Total spending in 2007 Most Popular Travel destination for Canadians is the USA

6 The Company Voyages Soleil Since 1975, Quebec, Canada Expertise/ focus

7 Case Details Who: Jacques Dupuis, President and Owner of VS What: Measure for foreign payment obligation Why: Foreign exchange risk When: 6 months later How: Hedge/No hedge the AP

8 Basic Issue IMPORTANCE URGENCY LOWHIGH LOW Fear of Terrorism Canadian Stock Market HIGH Interest Rate DeclineExchange Rate Risk

9 Immediate Issue IMPORTANCE URGENCY LOWHIGH LOW Market ShareUpcoming Sales HIGH Pricing the tour packages Foreign Payment Obligation

10 ECONOMIC CLIMATE TIMING OF THE PAYMENT PAYMENT IN FOREIGN CURRENY FLUCTUATING/ VOLATILE RATES FOREIGN EX-RISK Cause and Effect

11 Alternatives Do Nothing Forward Contract Borrow and Invest

12 Decision Criteria Cost Benefit Risk

13 Alternatives Assessment Alternatives Decision Criteria CostResult / BenefitRisk 1. Do NothingNone Scenario 1: No change in Spot rate Payment = $95.27 Million Scenario 2: Cdn$ depreciates Payment = >$95.27 Million Scenario 3: Cdn$ appreciates Payment = <$95.27 Million Hi 2. Hedge via Forward Contract LowPayment = $ MillionNone 3. Borrow Cdn$ and Invest in US$ HighPayment = $ MillionLow

14 Option 1 – Do Nothing Scenario 1 - Canadian dollar depreciates in the next 6 months Ex-Rates (US$/Cdn$) A/P in US$ (million)60 A/P in Cdn$ (million) Scenario 2 - Canadian dollar appreciates in the next 6 months Ex-Rates (US$/Cdn$) A/P in US$ (million)60 A/P in Cdn$ (million)

15 Option 2 – Forward Contract Assuming the Forward rate is accurate (F-S)/S x 12/6 x % discount will be assessed on the contract $95.68 Million in Canadian dollars

16 Option 3 – Borrow and Invest US $ 60 M Oct 01 4 Bank Borrow at Int rate 2.70% 1 CN $ Purchase US$ at $0.6298/CN$ 2 US $ Apr 01 Interest Rate 1.65% 3

17 Option 3 – Borrow and Invest US $60 M By Oct 01 1 US $59.51M Apr 01 Interest Rate 1.65% 2 Cdn $94.48M Purchase US $ at $0.6298/Cdn$ 3 Bank Borrow at Int rate 2.70% 4 Cdn $95.76M 5 FV at 2.70% Int. Customer s 6

18 Recommendation Choose option 2 Employ forward contracts for all of the payable, locking in the Canadian Dollar price. Six-month forward rate at April 1, 2002 is US$/Cdn$ Canadian Dollar needed in October 2002 is Cdn$ 95.68

19 Questions

20 Backup Slides

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