Case Name :      Alliance Design Concepts: Foreign Exchange Risk

Authors :           Ryan Orchard

Source :             Ivey Publishing

Case ID :            W14493

Discipline :        General Management

Case Length :    09 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

Alliance Design Concepts provided audio system solutions, which involved installing high-quality sound systems in customer facilities (such as large churches). A major cost component (60-80 per cent) for these systems was the equipment (speakers, amplifiers, etc.), which was sourced from the United States and paid for in U.S. dollars (USD). Alliance quoted prices to customers in Canadian dollars (CAD) by converting equipment costs from USD to CAD based on the exchange rate on the day of the quotation. Since it was often months later that Alliance actually converted cash and paid the supplier in USD, it found that a change in the exchange rate during that time could directly reduce the margin on the sale. The operations manager had to devise a risk mitigation strategy and/or business process change.