Hedging Currency Risk at AIFS The American Institute for Foreign Studies (AIFS) organizes study abroad programs and cultural Exchanges for American students. The firm's revenues are mainly in U.S. dollars, but most of its costs are in Eurodollars and British pounds. The companys controllers review the hedging Activities of AIFS. AIFS has a hedging policy, but the controllers want to review the percentage Of exposure that is covered and the use of forward contracts and options. AIFS sets guaranteed Prices for its exchanges and tours a year in advance, before its final sales figures are known. The Controllers need to ensure that the company adequately hedges its foreign exchange exposure And achieves an appropriate balance between forward contracts and currency options.

Questions:

What happens if sales volumes are lower or higher than expected as outlined at the end of the case?

What criteria will be used to make a recommendation on a hedging strategy?