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?
If Toyota don't change their prices in the U.S., American customer won't pay more for a car. It will be Toyota who gets less money for cars sold in the U.S. That is why their profits were lower.
ReplyDeleteThat do u mean by saying "they want to exposure the transaction risk in this situation"?
1. Could you explain how the new currency introduced in Europe can help to mitigate the risk of transactions for EU countries?
ReplyDelete2. In your post you have mentioned that "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". However, as you may see when talking about trade and currencies, the most common currency used is Dollar while Pound, although stable and at high value, it seems less used for trade. This might due to the fact that Pound is frequently used within UK rather than in other countries' boundaries. Do you think so?
Besides, is it good when using Pound for transaction since its value seems quite high compare with others which may lead to high trade in value for products or services which is not a good point for such companies whether they have intention in operating in poor or developing countries, for example?
yes,they want to exposure the transaction risk.
ReplyDelete1. Firstly how can you prove financial risk is the most imprtant role to play in the corporate environment? this is merely opinion.
ReplyDelete2. Your statment about buyers having to pay more for toyota cars due strengetrhening is incorrect.
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