1. What is the magnitude of the foreign exchange exposure for each of the currencies in exhibit 1?
|COUNTRY||GROSS BUY ($)||GROSS SALES($)||NET EXPOSURE|
2. Does the exposure to the Euro help or hinder to the competitive performance of Expert Motor?
To some extent the increased importance for companies in addressing the problems of foreign currency exchange rates is as a result of the internationalization of modern business (Copeland, 2005). This process is resulting in the growth of world trade relative to national economies and is also reflective of a trend towards economic integration in Europe in particular (Butler, 2000). Therefore as a multinational automobile company the management of exposure is a critical strategic decision in the company gaining a competitive advantage over its major competitors in different European countries. The exposure to the Euro can be discussed from both positive and negative perspectives which respectively affect the competitive performance of EM trades and international operations. Firstly the Euro is a relatively strong currency recently thus the competitiveness of domestic producers in Euro countries is not as robust when compared to the position of manufacturers that are based in weak currency countries. This is due to the high costs faced by those manufacturers which as a result are able to provide EM as a non-domestic company resulting price advantages.
Secondly corresponding to the strong performance of the Euro Expert Motors has tended towards diversifying its production locations in order to benefit from lower wage levels and weaker currency countries and balance its exposure to Euro accordingly. Nevertheless since 1979 the member countries of the EU have operated national policies coordinating currency relationships towards closer monetary integration thus minimizing the ability to benefit from varied currency cost levels within Europe (Christou, 1992). So EM can benefit from its treasure function being located in Budapest in certain ways. From this point of view it is interesting to note that when the Euro depreciated against the US dollar but appreciated against the mark it is hard to say that exposure to the Euro only had negative influences. In contrast exposure including transaction exposure and translation exposure obviously may hinder the competitive performance of EM or create losses for the company. For example the diversified locations of producers can not only reduce economies of scale, which is particularly vital for a motor maker, but also raise the cost of goods transactions. Additionally in terms of investment the exposure to Euro might reduce the profit margins ultimately on investment return due to appreciation of the Euro which might occur in the future.
3. How would the parent company in Florida view the situation if the gross buys and gross sales in Germany were reversed?
EM’s main business is conducted in Germany thus there will be a significant influence on the strategic decision process made in the parent company in Florida due to a change in the gross buys and gross sales evidenced thus far by EM. It is obvious in exhibit one that the purchasing of product elements occurs mainly in Germany and also at the same time that the major revenues of the company also originates from Germany. Therefore if the gross buys and gross sales were reversed there will be a decisive effect on EM’s profit levels as a result of currency exposure (Pike & Neale, 2003). Additionally the German Mark is relatively strong and the strategic exposure management decisions made in the parent company will see it is a good point for the company’s investment in terms of return. Although the cost of material and labour is comparatively higher in Germany profit return levels are attractive. Furthermor