Voyages Soleil : Hedging Decision

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VOYAGES SOLEIL: THE HEDGING DECISION

Industry and Situation Analysis
According to the case, the Canadian tour operating industry had been flourishing between 1988 and September 11, 2001. The Canadian economy growth rate also was increasingly as this industry that was very positively correlated with the overall economy. On September 11, 2001, there was the terrorist attack the Twin Towers of the World Trade Center in New York City. As a result, both buildings collapsed within two hours, destroying nearby buildings and damaging others, also killing everyone on board and many others working in the buildings. After this event, the economy in the United States and the overall countries slowed down. Specifically, the total number of trips Canadians made to the U.S. dropped by almost 25%.

Voyages Soleil, Inc
VS had been leading operated tour and travelling services business since 1975. They built relationships with their customers over the time and became a trusted client of the airlines and hoteliers in its southern markets. Over the upcoming 2002/2003 winter season, VS was decreasing in number of reserving the rooms over 35 hotels in all eight destinations, with a bill totaling US$ 60 million. The main problem was VS’s clients were from Quebec and they paid the packaged in Canadian dollars, but the hotels all these destination would accept payment in U.S. dollars only. As a consequence, VS faced foreign exchange risk on their operating business. The major concerns facing VS was the impact that changes in the Canadian dollar, it meant the company’s ability to pay its supplier. Therefore, the president in this company thought much how to deal with the U.S. dollars obligation. If the current exchange Canadian dollar appreciated from 0.6940 – 0.6298 US$/Cdn$, then it would cost US$ 60 million payable would cost over Cdn$ 95million. In contrast, if the current exchange rate of Canadian dollars were continue depreciating and reach 0.6000 US$/Cdn$, then it would...
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