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Finance & Accounting
Pages 5 (1255 words)
International Finance Compare and contrast the impact of foreign exchange risk on the two contrasting firm (Airbus and Boeing), and discuss how these firm should manage these risks. Boeing Company is the largest aerospace company of US. Its operations are in more than 90 countries.
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. The company’s half of the cost are paid in Euros and the company needs to hedge for at least two years at the appropriate rates against dollar for bulk of its revenue comes in dollars. The company should also make its European suppliers to bill them in dollars so that currency risk is passed on to them. ...
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