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: Whether it is wise decision when the Company E has significantly reduced its dollar hedging operations.
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Chapter 10 Solutions
International Business: Competing in the Global Marketplace
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