automakers were one of the main competitors of General Motors because their main advantage came from having large portions of their cost structure denominated in Yen‚ which meant that they were liable to achieve significantly reduced costs in the face of currency depreciation. This reduced cost would comprise of lower cost of productions‚ thus leading to a rise in the Product demand due to lower prices and finally a higher market share in the US which would could cut into the sales and market value of GM
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THE adoption of the multiple-currency system in Zimbabwe after 10 years of hyperinflation characterised by acute foreign currency shortages and low investment has ushered economic stability but it has also caused even worse economic challenges. During the period‚ across all sectors of the economy‚ there has been no capital re-investment and post-dollarisation companies have failed to recapitalise due to serious shortages and the cost of money. The prevailing pricing system in the country was distorted
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economy goods and services are imported and exported between countries with different currencies. For this purpose exchange rates‚ the amount at which one currency is traded for the other country’s currency‚ are used to complete the transaction. The collapse of the fixed exchange rate system of Bretton Woods in the early 1970s laid to the transition from fixed to flexible exchange rates. This means that currency exchange rates change every day depending on the forces of supply and demand for money
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operates its automotive business. For the different exposures‚ GM implements different ways to hedge. Commercial (operating) exposure‚ GM would calculate the implied risk which equals to regional notional exposure times annual volatility of relevant currency pair. If the implied risk is more than 10 million‚ G M s h o u l d h e d g e 5 0 % exposures. At the same time‚ at least 25% exposures should be hedged by options in order to assure flexibility. On top of that‚ all financial exposures should be
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accounting-derived changes in owner’s equity to occur because of the need to "translate" foreign currency financial statements of foreign subsidiaries into a single reporting currency to prepare worldwide consolidated financial statements. c. Functional currency It is the currency of the primary economic environment in which the subsidiary operates and in which it generates cash flows. It also the dominant currency used by that foreign subsidiary in its day to day operations. d. Beta and what it measures
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Argentinean subsidiary’s long term local currency problems have then be discussed with few different strategies that managers can adopt there. The appendix contains the technical calculations and graph that were necessary to support the decisions. INTRODUCTION: The case study addressed the exposure of General Motors to the foreign risk that arises due to its presence at a number of geographical locations and transactions in different foreign currencies. Corporate hedging policy does exist in this
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Toyota is exposed to the fluctuation in foreign currency exchange as it operates mainly in America‚ Continental Europe and Britain. It is therefore affected by the fluctuation in the value of the US dollar‚ the Euro and to a lesser extent the British pound. Toyota ’s consolidated financial statements‚ which are presented in the Japanese yen‚ are affected by the foreign exchange fluctuation‚ as all the amounts in the various countries ’ currencies have to be translated into yen. Toyota ’s primary
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Between 1980 and 1984 the dollar had high interest rates‚ between 11.3% and 13.7%. The high interest rates were to combat high inflation in the US economy‚ the interest rates also caused the dollar to appreciate against other currencies. Over the last 2 years inflation has fallen to 5%‚ much lower than the 10% rate in 1981. A lower inflation rate could result in the US government lowering interest rates‚ which could cause the US dollar to decline. Other warning signs of a possible
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rates. Accounting Exposure (Translation Exposure) – measures accounting-derived changes in owner’s equity as a result of translating foreign currency financial statements into a single reporting currency. Exhibit 8.1 [pic] Note: In the fourth quarter of 2001 Amazon.com reported a net income of $5 million‚ due in part to a one-time foreign currency gain of $16 million. Hedging – To take a position that will rise (or fall) in value to offset a change in value of an existing position
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40. EXPECTATIONS Review the case carefully and be prepared to respond to the following questions: Consider the conflicting responsibilities in Avicular Controls’ organizational structure - among the strategic management of the company and the functional areas for marketing and finance. Indicate how these meshed to maximize outcomes for the company’s business and how they diverged to create problems interfering with financial management. The original proposal‚ which ACI had thought it had negotiated
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