CSPub, a subsidiary of Canada Specialization Providers (CSP), is focused on providing educational materials. Due to market saturation in North America, CSPub is expanding into Asia. They have partnered with a Chinese publisher and are setting up operations in Singapore. Currently, CSPub has a small FX exposure, but they have experienced realized losses on US dollar sales, impacting their bottom line. However, with their expansion into Asia, their future exposure is expected to increase significantly.

In terms of their financial situation, CSPub has generated revenues of $8.5 million and profits of $1.8 million. They have small accounts receivable and accounts payable. CSPub contributes $8.5 million to CSP’s net revenue, including $2.9 million from US sales.

The Canadian dollar-Singapore dollar exchange rate has been experiencing average swings of 5%. It is forecasted to fluctuate within the range of US$0.75-0.786 over the next two years. There is a potential weakening of the Canadian dollar due to global economic factors.

The Singapore dollar is pegged to an undisclosed trade-weighted basket of currencies since 1985. It has a strong correlation with the US dollar due to its significant export dependence. The growth outlook for East Asia is projected to moderate due to trade tensions.

With the addition of Singapore operations, CSPub’s cost structure is changing. They will have Singapore dollar costs and revenues. Currently, up to 100% of their workforce is located in Canada. However, sales from the Asian agreement are expected to reach the same level as US-based sales within three years.

There are several management challenges that CSPub and CSP need to address. They need to estimate and manage their future currency exposure. It is important for them to develop short-term and long-term FX risk management strategies. They also need to evaluate hedging instruments and strategies for their effectiveness.

Singh has gathered information on exchange rates and forecasts, interest rates, forward rate quotes for Canadian dollar-Singapore dollar hedging, as well as insights into the global economic outlook and regional growth expectations.

The decision that needs to be made is to propose and implement effective FX risk management strategies for CSPub and CSP. They need to consider the potential impact of 5% fluctuations in exchange rates. It is crucial for them to act before the next fiscal year begins to mitigate risks.

The potential consequences of unmanaged FX exposure could lead to significant losses for CSPub and CSP. However, effective hedging strategies can protect their profits and stabilize their financial performance. Timely action is crucial to minimize risks and ensure future success.