Assess the foreign exchange risk of Ford Motor Company and instruments used to hedge it.
1. Exposure Analysis: Evaluate the extent of Ford's exposure to foreign exchange risk by identifying the currencies in which it conducts business, including sales, purchases, and investments.
2. Economic Factors: Consider macroeconomic factors like interest rates, inflation, and geopolitical events in countries where Ford operates, as these can impact exchange rates.
3. Currency Volatility: Assess historical and potential future volatility in exchange rates for the relevant currencies.
4. Transaction Exposure: Examine the impact of exchange rate fluctuations on specific transactions, such as importing materials or exporting vehicles.
5. Translation Exposure: Evaluate how fluctuations in exchange rates affect the consolidation of Ford's financial statements when converting foreign subsidiaries' financials into the reporting currency.
6. Economic Hedges: Ford may use natural hedges by matching revenues and expenses in the same currency where possible to mitigate risk.
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