Ocean Ltd is an Irish company that supplies booking software to the hotel industry, selling to the Irish, French and German markets. Turnover was EUR 3.5m in 2013, and the company currently has bank facilities of EUR 350K (with the overdraft drawn to EUR 330k). The company operates a EUR account in its local branch. They have recently secured a 3-year contract to supply their software to a large UK hotel chain. The contract is priced in GBP and the hotel chain is due to pay them a quarterly licensing fee of GBP 200k. The first of these payments will be made in January 2015. The company also has ad-hoc expenses in the UK from time to time, which they currently pay in EUR. Separately, the company has carried out a feasibility study about the merits of entering the US market and has spotted an opportunity. To exploit this fully, their local EI Development Advisor has advised that they will need to establish a presence in the US. The company plans to rent office space and employ 4 full-time sales representatives in the US. The projected monthly cost of this is USD 25k and they plan to pay this from existing EUR income. They estimate that it will take 6 months before they earn revenues in the US.

The Financial Controller has no previous experience with FX but has been asked by his CEO to put a Risk Management policy in place.

1. What FX exposures does the company face?

2. What suggestions would you make to the Financial Controller to address these exposures? Why?

Ocean Ltd is an Irish company that supplies booking software to the hotel industry, selling to the Irish, French and German markets. Turnover was EUR 3.5m in 2013, and the company currently has bank facilities of EUR 350K (with the overdraft drawn to EUR 330k). The company operates a EUR account in its local branch. They have recently secured a 3-year contract to supply their software to a large UK hotel chain. The contract is priced in GBP and the hotel chain is due to pay them a quarterly licensing fee of GBP 200k. The first of these payments will be made in January 2015. The company also has ad-hoc expenses in the UK from time to time, which they currently pay in EUR. Separately, the company has carried out a feasibility study about the merits of entering the US market and has spotted an opportunity. To exploit this fully, their local EI Development Advisor has advised that they will need to establish a presence in the US. The company plans to rent office space and employ 4 full-time sales representatives in the US. The projected monthly cost of this is USD 25k and they plan to pay this from existing EUR income. They estimate that it will take 6 months before they earn revenues in the US. The Financial Controller has no previous experience with FX but has been asked by his CEO to put a Risk Management policy in place. 1. What FX exposures does the company face? 2. What suggestions would you make to the Financial Controller to address these exposures? Why? Format of the Assignment - MUST BE SUBMITTED IN THE SAME TEMPLATE - THE RUBRIC USED FOR GRADING IS GIVEN - SOFT COPY SUBMISSION ON LMS ON OR BEFORE THE DUE DATE. - DOCUMENT SHOULD BE WELL EDITED - REFERENCE MUST BE QUOTED AT THE END OF THE DOCUMENT