Clearwater Seafoods
Introduction:
Clearwater Seafoods (CS) is a seafood exporting firm based in Canada. The firm is suffering value declining from international trade due to the appreciation of Canadian dollars. Hence, the company’s value declined for 35% that fails to distribute dividends under income trust since 2002. The company has to hold a conference for shareholders to establish an appropriate strategy to address the value declining problem and change its unit holder’s pessimistic shareholding sentiment.
This report will initially identify the root of foreign exchange risk that Clearwater Seafoods is encountering. After then, it will also discuss about the business risks that the firm needs to overcome. Further, we will try to find out relevant strategy to solve the company’s current issue.
CS Foreign Exchange Risk
As CS conducts international seafood trading, therefore, the firms receives foreign currencies and transfers its revenue into Canadian dollars. Additionally, the firm arranges its foreign exchange risk management operations which provide a considerable extra income for CS. However, there are significant risk will bring along from its foreign exchange management.
Foreign exchange risk can be divided in to three types which are translation, transaction and economic risk. For CS, it source of foreign exchange risk can be as follows
The first sort of risk is the translation risk. This occurs from the potential loss due to the moment when foreign currency transferred into home countries currency. The cost of currency translation can be varied each time. Consider this cost with CS, according to exhibit 8, the foreign currency translation cost fluctuates each year from 2003 to 2005 which is $1.443m, $3,006m, and $1.236m respectively. This indicated an uncertainty that the yearly currency exchange cost is extreme unstable that may obstruct the firm to make budget for next year to make hedges.
The second kind of risk on foreign exchange is the transaction risk. It
Clearwater Seafoods (CS) is a seafood exporting firm based in Canada. The firm is suffering value declining from international trade due to the appreciation of Canadian dollars. Hence, the company’s value declined for 35% that fails to distribute dividends under income trust since 2002. The company has to hold a conference for shareholders to establish an appropriate strategy to address the value declining problem and change its unit holder’s pessimistic shareholding sentiment.
This report will initially identify the root of foreign exchange risk that Clearwater Seafoods is encountering. After then, it will also discuss about the business risks that the firm needs to overcome. Further, we will try to find out relevant strategy to solve the company’s current issue.
CS Foreign Exchange Risk
As CS conducts international seafood trading, therefore, the firms receives foreign currencies and transfers its revenue into Canadian dollars. Additionally, the firm arranges its foreign exchange risk management operations which provide a considerable extra income for CS. However, there are significant risk will bring along from its foreign exchange management.
Foreign exchange risk can be divided in to three types which are translation, transaction and economic risk. For CS, it source of foreign exchange risk can be as follows
The first sort of risk is the translation risk. This occurs from the potential loss due to the moment when foreign currency transferred into home countries currency. The cost of currency translation can be varied each time. Consider this cost with CS, according to exhibit 8, the foreign currency translation cost fluctuates each year from 2003 to 2005 which is $1.443m, $3,006m, and $1.236m respectively. This indicated an uncertainty that the yearly currency exchange cost is extreme unstable that may obstruct the firm to make budget for next year to make hedges.
The second kind of risk on foreign exchange is the transaction risk. It