Chapter 10, Problem 1CDQ

Summary Introduction

Case summary:

The Person TC (Chief Executive officer of AP Company) has reported a loss of $5 billion in their revenue during the fourth quarter of 2016. This loss in the Company’s revenue was due to exchange rates changes. The impact on the company was significant, because the company’s revenue has reduced by 2% from an 8% increase.

The AP Company was engaged very much in hedging to protect from the foreign exchanges fluctuations. However, the appreciation of the dollar is much faster than forecasted so the company’s hedging activity has been unsatisfactory in order to protect the value of its overseas earnings.

Characters in the case:

• Company AP
• Person TC

To discuss: The reason why the strong Country U’s dollar has a negative impact on AP Company’s earnings.