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International Finance Airbus and Boeing - Essay Example
This paper compares and contrasts the impact of foreign exchange risk on the two contrasting firm (Airbus and Boeing), and discusses how these firms should manage these risks…
Boeing Company is the largest aerospace company of US. Its operations are in more than 90 countries. The commercial airplane division is the most prominent of all divisions. The company is headquartered in Illinois and known as premier US aircraft manufacturer. Boeing's revenue in the year 2010 was $64.31 billion and first-half revenue in 2011 was $31.45 billion. The company is subject to foreign currency exchange risk for company's revenue comes through its operations in various locations and company also makes payments to suppliers in foreign currencies. The company needs to manage foreign currency risk by entering into the foreign currency forward contracts, hedging the price risk associated with receipts and payments with respect to current business. The forward contracts neutralize the effect of any negative exchange rate fluctuations and safeguard the company.
Airbus is headquartered in Toulousse and owned by EADS. Airbus' operations are spread throughout the world with total workforce of more than 119,000. The company's costs are made in euro but bulk of the revenues comes in US dollar.
Airbus has long delivery periods for the order received today for the aircraft the delivery will be made only after 4-5 years. In view of this, they need to enter into forward contracts to lock currency exchange rates to safe guard themselves because they should not lose when the final payments are made to them on delivery. ...