Case summary:
The Country B has exposed to high inflation rate for many years. This has resulted in a decline in the value of Country B’s currency against the dollar of Country U. Later, the government of country B has bought down the annual inflation rates into single digits. As a result, the Country B’s economy has progressed tremendously due to the lower inflation rate policies. This in turn has resulted in a steady appreciation of Country B’s currency against the dollar of Country U.
The appreciation in the value of Country B’s currency has benefited Company E (manufacturer of regional jets). Later, the Company E has deal with impact of currency appreciation on its revenue and decided to hedge against the future appreciation of Country B’s currency through purchasing forward contracts. Suddenly, the Company E has incurred a loss of $121 million during the financial crisis period.
Characters in the case:
- Company E
To discuss: The types of foreign exchange rate risks that are exposed by the Company E.
Introduction:
A value of one country’s currency is used to convert into another country’s currency is termed as an exchange rate. The rate of exchange can be either floating or fixed. The two components of the exchange rates are the foreign currency and the domestic currency.
To discuss: Whether the Company E can reduce the foreign exchange rate risks and its ways to reduce such risks.
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Chapter 10 Solutions
International Business: Competing in the Global Marketplace
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