Aspen Technology Case

We recently researched the Aspen Technology case. Aspen Tech sells its software in the US but also abroad in Germany and China to name a couple. When companies sell their products in other countries they come in contact with currency exchange risk. Countries have different currencies which depreciate or appreciate against other currencies. With the US crisis, the dollar is not doing very well against other currencies. Europe tried to eliminate some currency exchange with the Euro. It helps with exchange rates and people losing money with exchanges in Europe, but the rest of the world still has issues with trading currencies. I know when I went to Costa Rica if I paid for anything with American dollars I could buy it cheaper because the locals only wanted dollars and they would do anything to get them. They could trade the dollars for more money for themselves. The dollar had more purchasing power for them.

In Aspen Tech's case, they were short on some currencies and long on others. For instance they were short on US dollars because most of their expenses were declared in US dollars. Another problem they had with currencies is when people made purchases in their native currencies, which they were more likely and willing to do. For instance, if someone bought the software with yen, but paid the money in installments rather than all in the beginning, Aspen Tech ran the risk of the yen losing value against the dollar. Therefore, it is important for Aspen Tech to hedge against currency risk.

Here is a website that defines currency hedging.

http://www.wisegeek.com/what-is-currency-hedging.htm

Wikipedia also discusses currency hedging.


http://en.wikipedia.org/wiki/Hedge_(finance)