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Voyages Soleil

Voyages Soleil. Dr. Greco Finance 570 Presented by: Chao Jiang Jungho Park Prabhu Palanisamy Robert Prime Vernace Wong. Agenda. Canadian Tourism Industry Company Background Case Details & Issues Alternatives & Decision Criteria Assessment Recommendation Q & A. Tourism.

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Voyages Soleil

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  1. Voyages Soleil Dr. GrecoFinance 570 Presented by: Chao Jiang Jungho Park Prabhu Palanisamy Robert Prime Vernace Wong

  2. Agenda • Canadian Tourism Industry • Company Background • Case Details & Issues • Alternatives & Decision Criteria • Assessment • Recommendation • Q & A

  3. 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)

  4. Tourism • Three different types of tourism • Inbound international tourism • Outbound international tourism • Internal tourism

  5. 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

  6. The Company • Voyages Soleil • Since 1975, Quebec, Canada • Expertise/ focus

  7. 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

  8. Basic Issue

  9. Immediate Issue

  10. Cause and Effect ECONOMIC CLIMATE FLUCTUATING/ VOLATILE RATES FOREIGN EX-RISK TIMING OF THE PAYMENT PAYMENT IN FOREIGN CURRENY

  11. Alternatives • Do Nothing • Forward Contract • Borrow and Invest

  12. Decision Criteria • Cost • Benefit • Risk

  13. Alternatives Assessment

  14. Option 1 – Do Nothing

  15. 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

  16. Option 3 – Borrow and Invest 1 2 3 Borrow at Int rate 2.70% Purchase US$ at $0.6298/CN$ Bank CN $ US $ Apr 01 Interest Rate 1.65% US $ 60 M Oct 01 4

  17. Option 3 – Borrow and Invest 4 3 2 Purchase US $ at $0.6298/Cdn$ Borrow at Int rate 2.70% Bank Cdn $94.48M US $59.51M Apr 01 FV at 2.70% Int. Interest Rate 1.65% Customers Cdn $95.76M US $60 M By Oct 01 6 5 1

  18. 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

  19. Questions

  20. Backup Slides

  21. Exhibit - 1

  22. Exhibit - 2

  23. Exhibit - 3

  24. Exhibit - 4

  25. Exhibit - 5

  26. Exhibit - 6

  27. Exhibit - 7

  28. Truly last slide

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