Case Notes/Answers
CS Publishing Inc. Foreign Exchange Risk Management,
By Stephen Sapp
Discussion Questions:
1. What challenge has Martha Singh recently identified, and why is it a concern now? How serious is
the problem? What alternatives can she consider to manage these challenges?
2. Why is CSPub changing its business model? What are the pros and cons of making these changes?
What types of risk does CSPub face in changing its business model?
3. Is CSPub facing any transaction risk as a result of this change in business model? How large is the
risk? What tools can be used to manage this risk? Assuming swings of plus or minus 10 per cent in
the exchange rate, how would different risk management strategies affect the magnitude of the
transaction risk?
4. Is CSPub facing any translation risk as a result of this change in business model? How large is the
risk? What tools can be used to manage it?
5. Is CSPub facing any operating risk as a result of this change in business model? How large is the
risk? What tools can be used to manage it?
6. Summarize the risks facing CSPub and CSP. How should Singh manage each of these risks, if at
all? What might an FX risk management policy look like for CSP and CSPub?
, W19726
Teaching Note
CS PUBLISHING INC.: FOREIGN EXCHANGE RISK MANAGEMENT
SYNOPSIS
A medium-sized Canadian provider of specialized educational products and services, Canada Specialization
Providers (CSP), has a subsidiary, CS Publishing Inc. (CSPub), which sells specialty learning materials
around the world. Although CSP’s costs and revenues are almost exclusively in Canadian dollars and its
subsidiary, CSPub, has most of its costs in Canadian dollars, CSPub also has a large and growing revenue
base in other currencies. Upon consolidation, this means that CSP is exposed to different currencies through
CSPub. Although the foreign currency values are currently relatively minor, CSPub is in the process of a
large global expansion that will expose both CSPub and its parent, CSP, to new sources of currency risk.
In March 2019, the director of CSPub must clarify the company’s current and expected future exposures to
currency risk and determine how these exposures might affect the parent company, CSP. She also needs to
identify the processes that could help manage these future risks and decide which of these processes to
implement, if any.
LEARNING OBJECTIVES
The case introduces foreign exchange (FX) risk management, identifies different types of FX risk (e.g.,
transaction risk, translation risk, and operating risk), demonstrates the quantification of each type of risk,
and discusses some of the tools available for managing each type of risk. It also allows for a discussion of
the goals and implementation of different risk management programs. After working through the case and
assignment questions, students will be able to do the following:
Describe foreign exchange risk management in a global business.
Identify and quantify the different types of foreign exchange risk: transaction risk, translation risk, and
operating risk.
Outline the different methods for managing each type of risk.
Recommend how to manage each type of risk, relative to the criteria and goals of a company’s risk
management program.
Explain how to evaluate a risk management program.
CS Publishing Inc. Foreign Exchange Risk Management,
By Stephen Sapp
Discussion Questions:
1. What challenge has Martha Singh recently identified, and why is it a concern now? How serious is
the problem? What alternatives can she consider to manage these challenges?
2. Why is CSPub changing its business model? What are the pros and cons of making these changes?
What types of risk does CSPub face in changing its business model?
3. Is CSPub facing any transaction risk as a result of this change in business model? How large is the
risk? What tools can be used to manage this risk? Assuming swings of plus or minus 10 per cent in
the exchange rate, how would different risk management strategies affect the magnitude of the
transaction risk?
4. Is CSPub facing any translation risk as a result of this change in business model? How large is the
risk? What tools can be used to manage it?
5. Is CSPub facing any operating risk as a result of this change in business model? How large is the
risk? What tools can be used to manage it?
6. Summarize the risks facing CSPub and CSP. How should Singh manage each of these risks, if at
all? What might an FX risk management policy look like for CSP and CSPub?
, W19726
Teaching Note
CS PUBLISHING INC.: FOREIGN EXCHANGE RISK MANAGEMENT
SYNOPSIS
A medium-sized Canadian provider of specialized educational products and services, Canada Specialization
Providers (CSP), has a subsidiary, CS Publishing Inc. (CSPub), which sells specialty learning materials
around the world. Although CSP’s costs and revenues are almost exclusively in Canadian dollars and its
subsidiary, CSPub, has most of its costs in Canadian dollars, CSPub also has a large and growing revenue
base in other currencies. Upon consolidation, this means that CSP is exposed to different currencies through
CSPub. Although the foreign currency values are currently relatively minor, CSPub is in the process of a
large global expansion that will expose both CSPub and its parent, CSP, to new sources of currency risk.
In March 2019, the director of CSPub must clarify the company’s current and expected future exposures to
currency risk and determine how these exposures might affect the parent company, CSP. She also needs to
identify the processes that could help manage these future risks and decide which of these processes to
implement, if any.
LEARNING OBJECTIVES
The case introduces foreign exchange (FX) risk management, identifies different types of FX risk (e.g.,
transaction risk, translation risk, and operating risk), demonstrates the quantification of each type of risk,
and discusses some of the tools available for managing each type of risk. It also allows for a discussion of
the goals and implementation of different risk management programs. After working through the case and
assignment questions, students will be able to do the following:
Describe foreign exchange risk management in a global business.
Identify and quantify the different types of foreign exchange risk: transaction risk, translation risk, and
operating risk.
Outline the different methods for managing each type of risk.
Recommend how to manage each type of risk, relative to the criteria and goals of a company’s risk
management program.
Explain how to evaluate a risk management program.
