Alliance Design Concepts: Foreign Exchange Risk
(5 pages of text)
Alliance Design Concepts provided audio system solutions, which involved installing high-quality sound systems in customer facilities (such as large churches). A major cost component (60–80 per cent) for these systems was the equipment (speakers, amplifiers, etc.), which was sourced from the United States and paid for in U.S. dollars (USD). Alliance quoted prices to customers in Canadian dollars (CAD) by converting equipment costs from USD to CAD based on the exchange rate on the day of the quotation. Since it was often months later that Alliance actually converted cash and paid the supplier in USD, it found that a change in the exchange rate during that time could directly reduce the margin on the sale. The operations manager had to devise a risk mitigation strategy and/or business process change.
This case could fit an introductory international business and/or finance course, where the primary use of the case would focus on foreign exchange risk and mitigation tools (including forward foreign currency exchange contracts), with a secondary focus on analyzing and improving the management of business processes and cash.
This case could also fit a general management course (small business focus), where the primary use of the case would focus on analyzing and improving the management of business processes and cash, with a secondary focus on foreign exchange risk.
Canada, Small, 2014
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