S&S Air International Essay

1908 Words Jun 12th, 2012 8 Pages
[Type the company name] | Case Study Four | S&S Air International? | | | 5/7/2011 |

The business world is highly competitive, changes quickly and is filled with risks and rewards. The international business world is no different! Things can change on the international stage in the time it takes to get a cup of tea! S&S Air has been in discussions with a dealer in Europe to sell the company’s model known as “The Eagle”. The dealer, Amalie Diefenbaker, has told S&S Air that she will pay the company €60,000 (€, Euro) per plane. She will order 15 planes a month and will pay for all 15 planes within 90 days; the intention would be to continue to order 15 planes each month. S&S Air is confident that they
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There are a number of different ways S&S Air can try to minimize, or hedge its risks for doing business overseas. S&S Air can hedge its exchange rate risks through various means. As we mentioned the exchange rate risk is made up of three parts, the short-run exposure, long-run exposure and translation exposure. Starting with short-run exposure, which is the day-to-day changes in the exchange rates, S&S Air can reduce or possibly even eliminate this risk by entering into a forward exchange agreement with Amalie to lock in an exchange rate that is a “win-win” situation for both parties involved. For example, S&S Air can lock in the current exchange rate o USD $1.30/€. This would guarantee that S&S Air would not sell their plane to Amalie for less than the currently sell it in the United States ($78,000). Since Amalie will be purchasing an additional 15 planes per month, the exchange rate would have to be renegotiated for each transaction. The long-run exposure is more difficult to hedge against than short term hedging because there is no organized market for long-term needs. S&S Air could consider building a manufacturing plant in the country that they are going to import their products to, in this case Europe. Following this line of thought, S&S Air could further reduce its risk by borrowing the necessary funds to build the

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