Aspen Technologies Case Questions (Essay Sample)

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Aspen Technologies Case Questions
Question 1
The exchange rate exposure is said to be the sensitivity to change in the unanticipated exchange rates of the real domestic currency value of the firm. The exposure is measured using the variance of the local currency value of liabilities, assets, or operating incomes that are attributed to the unanticipated changes in the exchange rates.
There exist three types of foreign, which are Translation Exposure, Transaction Exposure, and Operating Exposure. Aspen Tech being an international firm, it deals mainly with the sale of the products it produced abroad. And for this reason, it is majorly exposed to Transaction risk as the company sold what it produces to many countries. In this case, its major exchange rate exposures are the British pound, Japanese Yen, Deutsch Mark, and The Belgian Francs. In the firms’ dealings, it sold the products in U.S dollars. This kind of risks primarily arises as a result of cash flow risk and the effects of exchange rate movements on the transactional accounts exposures that are related to accounts payables, accounts receivables, or repatriation of dividends.
In Aspen Technology Inc, this kind of exposure mainly arose as a result of the firms engaging in multinational operations where the firm was able to conduct its operations across different countries. Apart of selling these products to the ever increasing number of countries, Aspen has set its prices for what it products in U.S dollars. This is a strategy to minimize competition, as the customer need to plan their income statements and are willing to avoid the fluctuation of their expenses due to the fluctuation of their local currencies. And the company’s (Aspen) policy allowing some customers to either pay upfront or defer payment over the three or extends to five years. Aspen’s agents are allowed to this because their clients are highly multinationals and cannot cancel their payments as entered to in the contracts. This gave Aspen Technology income, current cash flow, and receivables that are denominated in those countries’ currencies exposed to transaction risk.
Question 2
Aspen Technology exposure is summarized in the table below. Note that, all the non-U.S dollar sales are hedged into U.S dollars immediately during sales, and that the average exchange rate, that is, the U.S dollars per unit of foreign currency is over the fiscal year 1995.
CurrencySales in K$Operating expenses (k$)Net exposure (k$)Long term/short termBelgian Francs05.153-5.153Short termDeutsch Mark1.466484982Long termJapanese¥7.0724.4062.666Long termBritish £5.8654.7711.094Long termOthers517322195Long term
The Belgian Francs appears to be in Short term, and this is because Aspen will be losing money anytime the Belgian Francs Appreciated in value. On the other hand, the other currencies indicated Long term; their appreciations demonstrate an increase in the benefit for the firm.
The net exposure (taken into account the hedging) before sales are hedged, and the company is left with current sales alone, which is less. But current sales are used to finance expenses that, in this case, are more, so the net exposure is more advantageous to a weak pound – to – dollar exchange rate.
Question 3
Managing of risk associated with exchange rate exposure is an important instrument to all firms that have managed to globalize their operations. This activity can ensure that risk is reduced by the firm on her foreign exchange exposures. Managing these exposures can be beneficial to Aspen Technology Inc in several ways as listed below: Reduce the effects of exchang...