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2. As of July 2004, American Institute for Foreign Study (AIFS) hedge all its costs. Make...

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Finance

2. As of July 2004, American Institute for Foreign Study (AIFS)hedge all its costs. Make a case (without any calculations) to CFO,Becky Tabaczynski, that

a) hedging all its costs may not be an optimal strategy for thecorporation.

b) an option hedge makes a better choice than forward contractsfor hedging. Would Becky Tabaczynski agree with your thoughtprocess?

Answer & Explanation Solved by verified expert
4.4 Ratings (997 Votes)
a For AFIS hedging all its costs will not be an optimal strategy simply because when all costs are attempted to be hedged then the hedging does not remain effective It should be noted that an effective hedging program does not attempt to eliminate all risk    See Answer
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Transcribed Image Text

2. As of July 2004, American Institute for Foreign Study (AIFS)hedge all its costs. Make a case (without any calculations) to CFO,Becky Tabaczynski, thata) hedging all its costs may not be an optimal strategy for thecorporation.b) an option hedge makes a better choice than forward contractsfor hedging. Would Becky Tabaczynski agree with your thoughtprocess?

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