British Airways, a UK based airline operates flights to destinations all over the world. Among all destinations, British Airways flies to 27 cities in the US. International Airlines Group (IAG) is the parent company for British Airways. Focusing on British Airways, in your  report, you are required to: 

Q1.Identify and explain the currency risk faced by British Airways operating its UK-US flights. You may use some evidence from historical data to access the currency risk based on political or economic situations in the UK and US and make predictions on currency risks in the future.

Q2. Explain and evaluate the money market hedge as hedging strategies to minimize the company’s currency exposure as explained in previous questions. The task involves a discussion of the Currency Risks:

• Why is it important? Flight Volumes? Tickets Income from UK-US flights?

• GBP or USD appreciation or depreciation? Political and economic reasons on movement of exchange rates? Exchange rate risk exposure?

• Have they ever considered hedging currency risks? How did they do?

• Based on recent situations, make your own predictions on exchange rate between USD and GBP (Using IRP or PPP?)

• Your suggestions on money market hedge? How these can be done given BA receive USD income in the future?

Answer rating: 100% (QA)

Q1 Currency Risk Faced by British Airways in UKUS Flights Currency risk also known as exchange rate risk refers to the potential financial loss that a company may face due to fluctuations in exchange ... View the full answer