CS Publishing Inc.: Foreign Exchange Risk Management
(5 pages of text)
A medium-sized Canadian provider of specialized educational products and services, Canada Specialization Providers, had a subsidiary, CS Publishing Inc. (CSPub), which sold specialty learning materials around the world. Although the company's costs and revenues were almost exclusively in Canadian dollars and its subsidiary, CSPub, had most of its costs in Canadian dollars, this subsidiary also had a large and growing revenue base in other currencies. Upon consolidation, the parent company was exposed to different currencies through CSPub. The foreign currency values were currently relatively minor, but in March 2019, CSPub was in the process of a large global expansion that would expose both the subsidiary and the parent to new sources of currency risk. The director of CSPub needed to clarify the company's current and expected future exposures to currency risk and determine how these exposures might affect the parent company. She also needed to identify the processes that could help manage these future risks and decide which of these processes to implement, if any.
The case can be used at the undergraduate, postgraduate, and executive education levels in courses on international business, international finance, or financial risk management. It introduces foreign exchange risk management, identifies different types of foreign exchange risk (transaction, translation, and operating risk), demonstrates the quantification of each type of risk, and discusses some of the tools available for managing each type of risk. It also allows for a discussion of the goals and implementation of different risk management programs. After working through the case and assignment questions, students will be able to do the following:
- Describe foreign exchange risk management in a global business.
- Identify and quantify the different types of foreign exchange risk: transaction, translation, and operating risk.
- Outline the different methods for managing each type of risk.
- Recommend how to manage each type of risk, relative to the criteria and goals of a company's risk management program.
- Explain how to evaluate a risk management program.
Canada; Singapore; China, Small, 2019
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