Aspen Technology, Inc. Currency Hedging Review Essays

1804 Words Mar 25th, 2011 8 Pages
Executive Summary
Aspen has become a public company withmore risk adverse investors who want to invest in the core business of the firm and not assume any foreign exchange risk. Foreign exchange risk is a core risk to Aspen’s business because they have many customers outside of the United States. We believe that transferring this risk to the customers would limit Aspen’s growth on the foreign markets: Aspen should keep its current marketing strategy, which includes credit installment payments and payments in local currencies for Japan, the UK and Germany. The current risk management program hurts the company because it doesnot consider Aspen’s expenses abroad that balance sales exposures to currency fluctuations. We then recommend that
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Because Aspen allows customers to make installment payments, Aspen risks not receiving all of its cash from customers in the long-run, while in the short-run having little cash in its own hands, exposing itself to cash flow risk. Despite the many risks Aspen has, we believe that continuing with their current accounting strategy is in Aspen’s best interest, although we suggest modifying their current hedging activities by using different financial contract hedges.
Foreign exchange risk is a core risk to Aspen’s business because they are a multinational company with many customers outside of the United States. Aspen faces many risks in their business, such as the cash flow risk brought by installment sales, and due to these installment sales with customers outside of the U.S., they will always face foreign exchange risk exposure. Aspen could lessen its foreign exchange risk, but this as stated above would probably hurt its business. If Aspen keeps its current strategy as we suggest, foreign exchange risk will continue to be one of its largest core risks.
We believe that Aspen should take steps to reduce their accounting risk exposure and foreign exchange rate exposure by using more financial contracts. This would enable them to avoid the losses on paper that would, combined with the cash flow exposure Aspen faces, cause an increased cost of capital and potentially a loss of capital from investors

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