Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Foreign Exchange Risk Management
a) What are the causes of UK and Brazilian markets' revenues in Dollars being lower than expected? According to Dohring (2008), by invoicing the domestic currency, the company would have the capacity to shift the transaction exchange rate risk experienced to the consumers who are abroad. Therefore, this implies that the company would have had a greater interest from the transactions for invoicing in its domestic currency. Also, this implies that in the nine-month period when the GBP was depreciating the company would be able to generate more revenue and incur less costs.
One of the main causes of the revenue in dollars generated from the markets in Brazil and UK being lower than anticipated by the company is due to the depreciation of the countries' currencies against the U.S. dollar. Between January and September, the GBP constantly depreciated against the USD, an aspect that had not been anticipated by the financial team of the company.
b) How is the company doing in these markets?
The company is not operating well in these two markets as the revenues generated in the market have incessantly decreased in the nine months period. As the currency continue to depreciate against the dollar so has the expected revenue depreciated over the period.
c) Based on the given data, should it continue or cease the operations in these two countries: UK and Brazilia?
Centered on the data provided in the tables, it can be considered that the company ought to cease its operations or employ different strategies of dealing with the foreign risk being experienced.
2. What should have the company done in order to avoid the current situation? Please be specific.
3. Compare the total revenues for the first nine months. How much did the company gain (loss) in these two markets as a result of not hedging the FX risk?
With regard to the data from the UK market, the company did not hedge against its funds and therefore made a loss. The company generated revenues of $41,245,000. However, if the company had hedged its funds, it would have generated a total revenue of $44,134,000. Therefore, the company made a loss of:
($44,134,000 - $41,245,000) = $2,889,000
The same case applies to the Brazilian market as the company did not hedge its funds,…
References
Dohring, B. (2008). Hedging and invoicing strategies to reduce exchange rate exposure: a euro-area perspective. Economic Papers. Retrieved 21 October 2015 from: http://ec.europa.eu/economy_finance/publications/publication11475_en.pdf
Gonnelli, A. (1993). The Basics of Foreign Trade and Exchange. Federal Reserve Bank of New York, Public Information Department.
In addition, a series of joint ventures in which West German steel firms joined with East German firms and Krupp, Klockner, and Thyssen of Germany was pursuing other developmental initiatives in eastern Europe as well. Likewise, Arbed of Luxemburg was involved in steelmaking facilities in the former East Germany. According to Mangum et al., "The rising market for improved galvanizing for automobiles, appliances, canning, and other uses is producing
Econometric Modeling Financial risk is currently at the center of all economic activity due to the incredibly unstable financial environment of the world economy. As a consequence the search for ways to reduce risk has taken a front seat in the important issues of our day. Several instruments exist in order to increase risk reduction possibilities, these include forward and futures contracts as well as various derivatives. That the most optimal
Most developed economies, however, allow the market to set exchange rates, only influencing currency values through indirect means such as the increased or reduced sale of bonds to foreign entities and individuals, or through other means of international wealth exchange. Essentially, all manipulations of exchange rates and actions based on predictions of exchange rates are focused on the forward exchange rate, or the predicted rate of exchange between two
ETFs The first step is setting up an investment account is to understand the client. Everything flows from this. The client profile is developed through an extensive interview process, wherein the advisor seeks to gain an understanding of the client's personal circumstances, current and envisioned financial situation, risk tolerance and investment knowledge (Anthony, 2011). With this information, the financial advisor can then build a profile based on the portfolio objectives and
Foreign currency and macroeconomic analysis on the material currency against the U.S. dollar over the 5-year period ending with 2010. Imagine studying what is going on with currency in the world today, especially with what is going on outside and within the United States. What will one discover through this research? Has the dollar improved or become worse over the years? By learning various coinage, one is able to grasp ways
Finance Managing exchange rate risk can be a daunting task for many international firms attempting to expand overseas, acquire new companies, or simply manage its cash flows. Globalization has created a dynamic environment in which competition can arise to disrupt entire industries. Aspects such as technology, pharmaceuticals, banking, and automobiles have all experienced rapid change as a result of globalization and the competitive forces that underline it. As a result, companies,