Aspen Technology was growing, both domestically and internationally. Along with this growth come important issues to consider. With over 50% of licensing revenues coming from international clients, and many of these clients using the financing that Aspen offered, Aspen needs to have a sound-proof currency hedging strategy in place to manage the risks. Aspen’s current currency hedging strategy is to hedge 100% of its booked sales. This is an unnecessary strategy, primarily because Aspen turns around and sells these receivables for cash. We would therefore recommend that Aspen only hedge the portion of receivables that they do not sell right away. They should then maintain an active strategy of hedging in the future any further sales of receivables. Also, since Aspen is selling these receivables with limited recourse, they should hedge the amount of these receivables equal to the portion of receivables held in allowance for doubtful accounts. This way they will only be risking the credit of these accounts and not currency risk on top of that. As a measure of risk, Aspen could calculate VaR for their cash flows. For each time period in the future, they could calculate the 99% VaR using historical currency data. This can give them a better idea of the safety or lack there of their cash flows. Another issue that Aspen has not been addressing is their expenses in foreign countries. They have not been adjusting hedging policies for these expenses, and they should be. A simple solution to this problem would be to set aside a portion of each country’s sales proportionate to the estimated expenses. Therefore any fluctuations in that country’s currency would not affect Aspen. In the case of entering a new country with its own currency, they can subtract the estimated expenses to any hedging they do in that country. However, this is likely to be a small percentage of Aspen’s overall sales and will likely not have a large effect. One important thing for Aspen to consider is that it is now a publicly traded firm. Its shareholders care about dividends, and its customers care about its financial health. Aspen should focus on smoothing out earnings to keep its shareholders happy. Moreover, since Aspen’s relationship with clients is an ongoing one, its customers need to be assured that Aspen will be around in years to come. Aspen can use a number of instruments to hedge its risk. It’s currently using forwards to hedge its currency risk. It could continue to use these forwards, or perhaps use options as well. To hedge the duration of its cash flows, Aspen can short bonds denominated in the country those cash flows are coming from. An appropriate hedge ratio will need to be calculated to account for the difference in duration of the bonds they are using to hedge.