Corporate Risk Management and Exchange Rate

            Generally, companies are facing number of risks in the competitive environment. Such as financial risk, market risk and reputation risk. The financial risk is the most important role play in the corporate environment. The financial risk driven by internally or externally, but externally driven risks are unpredictable. Such as currency exchange rate risk and interest rate risk.

            The large multinational companies will be used different currencies for their international trading. In the Europe countries exposure the exchange rate effect, they have introduced the new currency to mitigate the risk of their transactions. This will encourage the Europe to trade there businesses with in the countries rather than going to abroad, Such as America.

            Exchange rates have become very important when entering in to the international transaction. In this situation, we don’t know the exchange rate have to strengthen or weaken. If the company could sold some goods to other companies, the exchange rate is strengthen the company have received an profit from exchange but the rate is weaken the company made a loss from that transaction.

The recent news reported that the Toyota’s quarterly profit has drop 39% due to strength of the yen. Toyota President Akio Toyoda has said that the yen needs to be trading at a minimum of 90 to the US dollar to keep Japan's manufacturing sector competitive. The yen is currently trading at close to 82 per dollar, significantly stronger than Mr Toyoda's target rate. The buyers have to pay more to buy Toyota; therefore they won’t to buy the Toyota cars. There fore buyers went other car market. Therefore they want to exposure the transaction risk in this situation. Most companies adopt currency where their main operation occurs. This is helping them to mitigate the risk. Another method is adapt a stable currency for their transactions, Such as Dollar or Pound. If you had the money available for investment which do you think would be the most interesting way to invest it, in the stock market or in a market for monetary exchange?

Raising Finance

Medium size companies have to looking for expand there businesses through investment. Such investment through family members and have come to the conclusion you need to find others. There are large numbers of ways that it is possible, depending on the riskiness and amount of return you can offer.

The main option is to float the company in the stock exchange. This allows large cash to take place. But not to pay back, this could be achieved through tender offer. Another more secure method is that of a stock exchange introduction where the shares pre purchased. Once listed on the stock exchange further cash could raise through right issue.

Bond also an option to raised finance. There are varies types of bond. If the company must choose which form of bond to use raised the finances? Bond holders have received a fixed rate of interest through the period and after a matured period the amount borrowed will be pay back.

Bank loans are another way to raise the finance, who doesn’t want to reduce the control of the owner.  This is a possibility of entering in to a spreading the risk of the between the investors to raise large amount of finance. This requires finance received paid back at a latter date.

The recent articles have looked at the current stock exchange and their collaboration most notably LSE and TSE worth of £4.2 billion and the NYSE and Deutsche Bourse worth £14.4 billion (Montreal, 2011). The recent financial time noted people are worried that deals. Are collaborations going to benefit medium size businesses if they decided to use stock exchange to float the company?

Just looking at the Premier League and the Spanish League it is interesting to see the amount of debt some football clubs have been saddled with. Manchester United in particular faces such high interest payments, from bank loans, that they account for a large proportion of profits leaving little if no money left for serious investment. Would their owners have been better off raising finance from elsewhere?

stock exchange and stock market efficiency

Stock exchange is a market for selling and buying the public companies shares.  There are lot of shares trading in the market per a single day. In 2011, it’s more than $80Trillion per day. The global financial market developed in 1980s and 1990s, before 1980s there are many barriers to move to the global market such as capital barriers and government restrictions. The global financial market has to help for the investors, companies and economy. The companies have to access the capital, opportunity to expand through acquisition and growing young companies to obtain finance and market attaches a price to risk.

The stock market efficiency is the extent to which share prices at all times fairly reflect all relevant available information. The market efficiency can be weak, semi and strong form. In the recent report stated Moss Boss shares surged more than 14% to 27.25p after the company announced its was selling its 15 Hugo Boss stores. Moss Bros will sell the stores back to Hugo Boss for £16.5m, ending a 16-year franchise deal. Because they want to focus on their core stores and right to move strategically and operationally. The Moss Bros made a loss from this franchise around £0.3 million for the year.

Looking at recent example, the shell’s share price was fall by 3% in a single day. They have release there reported profit, but the profit around double compare to last year. The perfect information does not work in the market. But the price of the oil has risen by 15% compare to previous year. The investors have not happy about the profit. It would suggest that even trying to predict share price movement is difficult in the market.

In the Tuner report says, stock market pricing is individual pricing not a rational. The shell’s share price a surprising thing. This is an unpredictable.

With the level of uncertainty, can stock market be seen anything more than speculative gambling?

BP shareholders are loss dividend by £40bn

The latest reports have estimated £40bn loss in dividend payment. BP is a multi mega international company. The BP have been losses over the past years, due to safety regulations problems lead to disasters Mexican Gulf oil spill and explosion on Texas city also bad management. The CEO has been changes continuously over a period of time, Such as in 2006, departure of Browne and Hayward in 2010. They have to get more remuneration, pension and other benefits from their work but not focus on shareholder wealth maximisation.

The Texas City explosion was a result of varies cost cutting such as training of the staff and poor management of safety. The CEO (Browne) has to show the performance of the achievement but not the benefit of the workers and the environment. He wants to get more remuneration, however the Gulf oil spill was an insufficient quality in packing cement. The explosion has affected the employees and local community. The employees have lost their future life. The safety management of BP found that safety measures not adequate to measure the safety in a safe way. The cost cutting and poor management are short term objective not the long term survival of the company. This could have increase share price in the shorter period of time but not their objective to ultimately increase the shareholder wealth. The BP invested all over the businesses to make shareholders confidence. They can redevelop their position in the future.

The explosion has lead to destroy the entire company’s reputation and image of the BP. The image can’t develop easily in the future. BP has lost their stakeholders and future investors. If the BP have to get permission from other country to operate a business unit, they can’t deliver the permission due to the explosion reoccurred in the future.

Latest report covered the difficulty in production operation in the Russia. Because the BP’s venture TNK-BP passes a case in the high court regarding share swap agreement and Arctic exploration agreements between BP and Rosneft(another Russian company) without TNK-BP permission.

BP analysis says the emerging economies to lead energy growth to 2030 and renewable to out- grow oil. This is not a predictable environment because some technologies will change the energy production without oil. The BP will further loss of the wealth.

The management and executive have to do more effective way to balance the shareholder wealth and stakeholder satisfaction. But BP example is helpful to the management what they want to do. But the executive have to increase the share price through profitability and belief that benefit for the overall community.