Foreign exchange risk is the unanticipated changes in the exchange rates that could lead to losses or gains for a firm. Multinational companies face three different types of foreign exchange risk: transaction risk, translation risk and economic risk (Eun & Resnick 2005). Translation risk is the risk that occurs when firms consolidate the financial statements foreign operations with that of the home country. For consolidation purposes, the financial statements of subsidiaries are restated from the foreign currencies to the functional currency. The translation risk is therefore the accounting risk involved when restating the foreign currencies to the functional currency for consolidation purposes (Eun & Resnick 2005). Transaction risk on the other hand is the risk of changes in exchange rates on the value of foreign currency transaction that the firm had entered into. Since multinational companies engage in credit transactions where payment for goods and services are made at a future date, there is a likelihood that the exchange rate at the transaction date will be different from the exchange rate on the date when the financial obligations are settled. The differences in the exchange rates may make multinational enterprises earn different cash amounts to the cash expected on the transaction date. Future cash flows of the enterprises are therefore at risk. Finally, economic risk is the effect of foreign exchange changes on the value of the firm. It is the long term effect of exchange rate fluctuations on the value of firm future expected cash flows. It is important to note that economic risk is difficult to determine because future cash flows are hard to anticipate. In order to clearly demonstrate how the foreign exchange fluctuations affect the contracts, cash flows and market values of a firm, the risk of foreign exchange fluctuation on Unilever has been analysed. Unilever is a leading supplier of fast moving consumer goods in the globe (Unilever 2010). The products are in the line of hygiene, nutrition, personal care and other products which make people feel good and improve the quality of life. The turnover of is generated in emerging markets and in the developing economies (Unilever 2010). This global nature of operations exposes the company to operational, political and economic risks. These risks could adversely affect the cash flows; asset base, turnover and profit margin hence impair the shareholders value maximisation goal. Moreover, because Unilever prepares consolidated financial statements in Euros, it is exposed to translation risk of the subsidiaries net assets (Unilever 2010). Unilever is as well faced with the threat of exchange controls by individual countries that constrains its imports ability paid by foreign currency (Unilever 2010). During the economic recession, the Euro declined significantly in the various countries of operations (Eun & Resnick 2005). This threatened the profitability of Unilever as the economic recession made most regions incur colossal losses from the foreign exchange fluctuation. It thus made Unilever to react swiftly to the risk in foreign exchange exposures by adopting hedging techniques. The report further discusses the hedging techniques that were used by the finance managers to mitigate if not eradicate the adverse impact of the fluctuations on the firms profitability and operations. The paper has also come up with the various recommendations that
INTERNATIONAL FINANCIAL STRATEGIES Date Introduction The era of globalisation has seen businesses extend their operations in foreign markets making them be classified as multinational enterprises. In this course, multinational companies face many challenges…
Samsung’s Business Strategy Report Name: Instructor: Task: Date: Samsung’s Business Strategy Report The global industries and corporate businesses are on a continuous dynamic phase where each industry player is seeking ways and means through which it can lead the pack.
Introduction The development of globalization in markets worldwide has allowed businesses to achieve a high growth within a relatively short period of time. However, the decrease of time in the expansion of business activities, as a consequence of globalization, has been followed by the increase of relevant risk (Vellani 2007, 134).
The company employs a total of 2.1 million associates (employees) across the globe. In 2010 alone, Wal-Mart had cumulative sales of $405 billion, making it a formidable retail outlet in the world (Wal-Mart 2011a). As a multinational retailer operating chain stores across the globe, Wal-Mart is constantly susceptible to the some risks in its day-to-operations.
Risks are hazardous for the organisations, as they act as an obstacle in meeting the organisational missions and objectives. Management of risks involves identifying risks and assessing the level of damage they can cause in the functioning of the organisation (Jonas 1998).
With more than 300 years of expertise and history in banking, the organization operates in more than 50 countries and employs 140000 people (Barclays, 2012). The universal banking model of Barclay provides it with continuous competitive strength. Revenue earned by the bank remained resilient reflecting the strength of the customers of the bank and mixture of balance in their business.
The bank of America has its financial and banking services spread all over the world in 40 countries. Bank of America completed the acquisition of Merrill Lynch in 2008 to become one of the largest players providing wealth management services across the world.
(Drucker) Unfortunately, even today, operating plans and not business strategy, govern most investments in the IT space.
Given the pivotal role that Information Technology plays in todays networked and e-commerce enabled global business, most companies think of their IT plans as integral to business strategy.
And at the same time degree of risks to be faced by organizations also may vary from one another depending upon their size, nature, diversity of business line and also their sources of capital to which they are depending upon. An organization is claimed to be risky when its liabilities exceeds than its assets or other way when they are seriously suffering from any physical dangerous while carrying out their operations.