1 voyages soleil dr. greco finance 570 presented by: chao jiang jungho park prabhu palanisamy robert...
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Voyages Soleil
Dr. GrecoFinance 570
Presented by:
Chao Jiang Jungho Park
Prabhu PalanisamyRobert Prime
Vernace Wong
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Agenda
Canadian Tourism Industry Company Background Case Details & Issues Alternatives & Decision Criteria Assessment Recommendation Q & A
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Tourism
The activities of a person outside his or her usual environment for less than a specified period of time and whose main purpose of travel is other than the exercise of an activity remunerated from the place visited.
Chadwick (1994)
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Tourism
Three different types of tourism• Inbound international tourism
• Outbound international tourism
• Internal tourism
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Canadian Tourism Industry
Tourism is big industry in Canada• Average growth rates > 8%
• Total spending in 2007
• Most Popular Travel destination for Canadians is the USA
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The Company
Voyages Soleil
• Since 1975, Quebec, Canada
• Expertise/ focus
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Case Details Who: Jacques Dupuis, President and Owner of VS
What: Measure for foreign payment obligation
Why: Foreign exchange risk
When: 6 months later
How: Hedge/No hedge the AP
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Basic Issue
IMPORTANCE
URGENCY
LOW HIGH
LOW Fear of TerrorismCanadian Stock
Market
HIGH Interest Rate Decline Exchange Rate Risk
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Immediate Issue
IMPORTANCE
URGENCY
LOW HIGH
LOW Market Share Upcoming Sales
HIGHPricing the tour
packagesForeign Payment
Obligation
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ECONOMICCLIMATE
TIMING OF THE PAYMENT
PAYMENT IN FOREIGN CURRENY
FLUCTUATING/VOLATILE
RATES
FOREIGNEX-RISK
Cause and Effect
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Alternatives
Do Nothing Forward Contract Borrow and Invest
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Decision Criteria
Cost Benefit Risk
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Alternatives Assessment
AlternativesDecision Criteria
Cost Result / Benefit Risk
1. Do Nothing None Scenario 1: No change in Spot rate Payment = $95.27 Million
Scenario 2: Cdn$ depreciatesPayment = >$95.27 Million
Scenario 3: Cdn$ appreciates Payment = <$95.27 Million
Hi
2. Hedge via Forward Contract
Low Payment = $ 95.68 Million None
3. Borrow Cdn$ and Invest in US$
High Payment = $ 95.76 Million Low
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Option 1 – Do Nothing
Scenario 1 - Canadian dollar depreciates in the next 6 months
Ex-Rates (US$/Cdn$) 0.6298 0.6200 0.6150 0.6100 0.6050 0.6000
A/P in US$ (million) 60 60 60 60 60 60
A/P in Cdn$ (million) 95.27 96.77 97.56 98.36 99.17 100.00
Scenario 2 - Canadian dollar appreciates in the next 6 months
Ex-Rates (US$/Cdn$) 0.6298 0.6396 0.6446 0.6496 0.6546 0.6596
A/P in US$ (million) 60 60 60 60 60 60
A/P in Cdn$ (million) 95.27 93.81 93.08 92.36 91.66 90.96
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Option 2 – Forward Contract
Assuming the Forward rate is accurate (F-S)/S x 12/6 x 100 0.857% discount will be assessed on the
contract $95.68 Million in Canadian dollars
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Option 3 – Borrow and Invest
US $ 60 MOct 01
4
Bank
Borrow at Int rate 2.70%
1
CN $
Purchase US$ at $0.6298/CN$
2
US $Apr 01
Interest Rate 1.65%
3
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Option 3 – Borrow and Invest
US $60 MBy Oct 01
1
US $59.51MApr 01
Interest Rate 1.65%
2
Cdn $94.48M
Purchase US $ at $0.6298/Cdn$
3
Bank
Borrow at Int rate 2.70%
4
Cdn $95.76M
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FV at 2.70% Int.
Customers
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Recommendation
Choose option 2• Employ forward contracts for all of the
payable, locking in the Canadian Dollar price.
• Six-month forward rate at April 1, 2002 is 0.6271 US$/Cdn$
• Canadian Dollar needed in October 2002 is Cdn$ 95.68
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Questions
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Backup Slides
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Exhibit - 1
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Exhibit - 2
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Exhibit - 3
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Exhibit - 4
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Exhibit - 5
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Exhibit - 6
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Exhibit - 7
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Truly last slide