Question: If you were responsible for overseas operations of a firm, how would y

Question

Question: If you were responsible for overseas operations of a firm, how would you minimize your currency risk?

When multinational firms do risk analysis, a very important variable that they consider is uncertainly about exchange rates. For example, in 2010 Boeing deliveries of its 787 Dreamliner aircraft, which competes directly with models made by European Manufacturer Airbus. Boeing produces these planes in the United States, paying workers and suppliers in U.S. dollars. Airbus, on the other hand, has costs that are more closely tied to the Euro. What this means is that when the Dollar is very strong relative to the Euro, airbus competitive advantage over Boeing. However, when the Euro is strong relative to the Dollar,   Boeing has a competitive advantage over Airbus. As a result the exchange rate between the Euro and the Dollar play a particular important role in the sensitivity and scenario analysis of Boeing investment projects, and it can fluctuate dramatically. In fact, at the beginning of December 2009 it took $1.51 to buy one Euro, and in February 2010 that had dropped to $1.35, about an 11% drop in the three months. These exchange rate changes made Boeing

Explanation / Answer

currrency risk is one the potential and unavoidable risk where every firm has to face in this globalization scenario. there are many alternatives availabe in forex markets where we can minimize the risk by followoing them. like SWAP, means simultaneously buying and selling of different currencies and different matrity periods.

and there are currecny options, based on our need and requirement we can choose any of the option (call or put) and we can buy or sell foreign currency at a predetermined future date.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.