Jaguar Plc, 1984

Looking into the competitive threat more closely, the auto industry in the United States is rather sensitive to price, with a price elasticity of 2, or a 5% increase in price contributing to a subsequent 10% fall in demand. Thus, based upon the sticker price decreases potentially implemented by Japanese automakers, Japanese companies’ combined market share (roughly 4.1m units in 2000) stands to increase substantially, and could eat into General Motors’ overall market share. To highlight the sensitivity to the USD-JPY spot exchange rate, GM’s VP of Finance, Eric Feldstein, suggests that just a one-yen depreciation increases competitors’ operating profit by $400m. With $900m in net yen receivables, $500m in outstanding yen-denominated bonds, and more

This case explores the operating exposure of Jaguar PLC in 1984, just as the government is about to relinquish control and take the company public via an IPO. The primary concern of the CFO is that Jaguar sells over 50% of its cars in the US, while its production costs and factories are U.K.-based. This currency mismatch creates operating exposure for the firm that needs to be hedged.

Exhibit 7 from the case study describes the currency development in medium term of the GBP and EURO against the dollar. We can observe that the currencies are exposed to high volatility, which means the company may register greater risk

This case shows us that apart from transaction, translation and economic exposure to currency risk, firms also have the very real strategic impact on their competitive position from competitive exposure. Apart from GM’s exposure to the yen which is reflected in their financial statements, their competitive position vis-à-vis Japanese manufacturers is affected by a potentially declining yen. This is because a declining yen reduces the Japanese manufacturers’ $ cost, enabling them to pass on some of the benefit to US customers and thus taking some of GM’s market share. This will impact GM’s top and bottom line. However, GM has a difficult decision regarding managing this risk.

In the literature three types of exposure under floating exchange rate regimes are identified; economic, translation and transaction. Translation and transaction exposures are accounting based and defined in terms of the book values of assets and liabilities denominated in foreign currency. Economic exposure is

Currency risks are majorly involved with expanding into foreign markets. Due to the fluctuations of exchange rates, apples profits can vary due to demand and supply. The value of a currency is varied due to currency depreciation and appreciation and this fluctuation and

There are lots of methods to solve the changes in foreign currency and interest rates issue, however, derivative financial instruments are the major tunes Nike enterprise has used to tackle this issue. Despite the fact that this approach does not wipe out comprehensively the risk of foreign exchange, Nike enterprise still utilize it to minimize or delay the negative consequences. Specifically, the derivative financial instruments comprise embedded derivatives, interest rate swap, and foreign exchange forwards and options contracts (Nike annual report, 2014).

To study this subject, the author used a questionnaire of MNCs, choosing the largest 600 questionnaires from the UK, USA, Australia, Hong Kong, Japan, Singapore and South Korea. A total of 179 usable responses were received and this was the basis of the paper. The questionnaire covered a number of different subjects, including the importance of foreign exchange rate risk management, the objectives of managing foreign exchange rate risk, the degree of emphasis on transaction risk, the degree of emphasis on translation risk, the degree of emphasis on economic risk, and whether the respondent manages translation risk internally. The questionnaire also sought to understand some of the techniques that firms in the different regions used, for example pricing strategy, operating hedges, and planning. Where economic risk was not managed, the author sought to find out why the company had chosen not to manage this type of risk.

2. Rising raw material prices. Rising raw material prices increase so will the the price of the cars. The prices are important to manufactures because this means that they will need to increase the sales and so their profits will decrease.

Also there are risks and uncertainties associated with the company’s expansion into their operations in Asia, Latin America, Caribbean and other foreign markets could adversely affect their results of operations, cash flow, liquidity or financial condition. Fluctuations in foreign currency

The US dollar has strengthened substantially over the last year when compared to other currencies. This causes US exports of vehicles and

There are three different foreign exchange risk categories: translation, transaction and economic exposure. Translation exposure is “is the impact of currency exchange rate changes on the reported financial statements of a company.” (Charles W. L. Hills, 2013) Translation is determined by evaluating pass events using present measurements that will produce an unrealized gain or loss. Translation exposure affects the consolidated balance sheet showing whether a company is more or less leverage, which can affect its borrowing capacities. Transaction exposure is when changes in exchange rate affect a contract already establish at one point in the past, in the future, making it less or more profitable. In other words, if a contract is in place,

The Woolworths has transactional currency exposures arising from the acquisition of goods and services in currencies other than its functional currency. This creates a risk to business expansion but also have an impact on the growth in other departments. It is the Group‘s policy that business units entering into such transactions must cover all such exposures with forward exchange contracts to hedge the risk of fluctuation in the foreign currency exchange rate (refer to the accounting policy note on hedge accounting). Forward exchange contracts and trade payables at year-end.

What is exchange rate risk? An exchange rate risk refers to exchange rate fluctuations which can affect a firm’s profits and trade. For example, the euro exchange rate was $0.87 in 2002 but risen to $1.28 in 2012, so the cost in dollars increased by 47.1% over the 10 year period. This increase hurts the export of European products to the United States (Brigham & Ehrhardt, 2014). Also, the volatility of exchange rates incrases the uncertainty of the cash flows for a MNC. Because the cash flows are denominated in many different currencies, the dollar equivalent value of the company’s consoilidated cash flows also functuates (Brigham & Ehrhardt,

Translation exposure is the effect of changes in exchange rates on the accounting values of financial statements (Shapiro, 2010, p.356). The translation exposure arises from the conversion the financial statements denominated in foreign currency from denominated in home currency. The MNCs could reduce their translation by using funds adjustment. For an example, if the devaluation of USD is expected for a Chinese company. The company could use direct funds adjustment such as pricing the exports in RMB and pricing the imports in USD, investing in RMB securities and replacing loans in RMB