The key decision and the risks facing the company – Voyages Soleil, Inc. (VS)
The key decision faced by the company (Voyages Soleil, Inc.) is how to embrace international foreign exchange rates against the Canadian dollar despite the looming financial challenges. The value of US$ against the Canadian dollar has been fluctuating considerably. The company might operate at a loss when it books hotels in other countries using US$ as the standard currency for payments. Evidently, international hotels prefer payments in US$ but not Cdn$.
According to the case provided, the company (VS) had been hit adversely by the economic downturns and insecurity factors following the incident of September 11, 2001, in US. Issues of insecurity and travel cancellation played credible roles in the company’s decision making provisions.
Precisely, the key decision is how to approach the foreign exchange risks following the then economic hitches. The risks facing the company incorporate fluctuating exchange rates between US$ and Canadian dollar. Additionally, economic plunge and decline in the travelling trends following the U.S.’s terrorist attack on 11/9/2001 are other risks faced by VS. Concurrently, hiked competition among the remaining Quebec tour operators and other players in the industry forms a considerable risk.
Stakeholders in this situation
Stakeholders in this situation incorporate VS Inc. (as a tour operator), suppliers to the company, clients, airline corporations, foreign exchange markets, other tour operators, international hotels, and other significant parties. Precisely, the stakeholders of this situation are numerous. They range from the travel industry players to the government agencies handling security concerns.
The future of the Canadian travel industry and the Canadian currency at this stage (case date)
The future of the Canadian travel industry is stunning. It is evident that the industry has been growing tremendously in the recent past despite the mentioned challenges. From the case study provided, it has restored its stability after the incidence of 9/11/2001, which created instability in the industry due to insecurity concerns.
This is a crucial provision when considered critically in regard to the fates of the Canadian travel industry. Internationalisation of various organisational activities and stabilization of foreign exchange provisions have contributed to the recent growth of the industry.
Additionally, the Canadian dollar has been stabilising against the US$. This will curb the risks faced when dealing with international exchange rates. Additionally, the Canadian travel operators can easily transact or pay their clients in US$ minus making considerable losses.
Options available to the company and the consequences
VS Inc. is considering various options so as to handle the current situation critically. Firstly, it considers waiting until October to exchange the Canadian dollar at the then prevailing rates. This option is risky in case the exchange rates between US$ and Canadian dollar destabilises to the negative.
Additionally, it is not possible to predict the situation as evident in the case study provided. The second option is to employ forward contracts for the entire payables. The consequence of this option is unpredictability in the US$ values. The third option is to buy (using borrowed Canadian dollars) US$ as at April 1, 2002 and trade them 6 months later. Consequences of this option incorporate the unpredictability of the situation. The company might gain or lose money in the coming 6 months..
Recommendable actions
It is recommendable for the company to borrow Canadian dollars. It can then buy US dollars and trade them later at the prevailing rates. The borrowing rates will allow the company to regain its capital and remain with some money to cater for the foreign exchange risks experienced in the industry.