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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

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Bank

Borrow at Int rate 2.70%

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CN $

Purchase US$ at $0.6298/CN$

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US $Apr 01

Interest Rate 1.65%

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Option 3 – Borrow and Invest

US $60 MBy Oct 01

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US $59.51MApr 01

Interest Rate 1.65%

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Cdn $94.48M

Purchase US $ at $0.6298/Cdn$

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Bank

Borrow at Int rate 2.70%

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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

Truly last slide