1. AIFS Critique Tess Duale, Jacob Entel, Matt Hammer, Blake Korman, Ryan Levine, Drew Miller

2. Agenda ●Exchange Rate Risk and Hedging Possibilities ●Optimal Exchange Rate and Sales Volume Combination ●Calculations for Analyzing Hedging Options ●Recommendation

3. Exchange Rate Risk and Hedging Possibilities ●Hedging protects AIFS from sudden unfavorable movements in exchange rates from damaging its bottom line. ●Costs are primarily incurred in Euros and British Pounds. ●How much of costs to cover with either options or forward contracts is a major factor.

4. Sales Volume and Exchange Rate Risk ●Hedging policy is set based on expected sales volume, not actual sales volume. ●Any sudden increase or decrease in sales can affect AIFS’ bottom line. ●Relationship with different banks helps AIFS hedge.

5. Hedging Possibilities ●No Hedge (Spot Trade), Forward Contracts and Option Contracts. ●Advantages and Disadvantages of each possibility.

6. Hedging Possibilities: Outcomes ●No hedge o Future spot XR ●Forward contracts o Contract value remains same at every XR o High risk exposure to sales volume ●Options o Sales Volume 30,000 o @ XR 1.01

7. Recommendation ●Hedge 100 Percent with forward contracts ●Monthly Average Exchange Rates USD/EUR trending upward ●5 Percent premium with options

8. Worst/Best Combination ●Worst Combination: Sales Volume of 10,000 at exchange rate of 1.01 ●Surprise Cost = (10,000 * 1.22) - 30,500 = (18,300) ●Best Combination: Sales Volume of 25,000 at exchange rate of 1.48 ●Savings = (25,000 * 1.48) - 30,500 = 6,500