Question

In addition to using financial options, what do you think Porsche should do to manage its USD economic exposure?

Answer 1

To manage its USD economic exposure Porsche can make use of currency risk mitigation strategy and operational strategy.

Currency risk mitigation strategy can be used by Porsche to minimize as well as eliminate its USD economic exposure through hedging. Porsche can make use of currency swaps as a part of its currency risk mitigation strategy. Using currency swaps Porsche can obtain the required cash flows in foreign currency at the desired exchange rate. The counterparty with whom Porsche enters into currency swap will exchange interest and principal in one currency for the same in another currency. Porsche can also enter into currency risk sharing agreement with its suppliers and if possible with its customers as well. This will help Porsche to execute their various contracts at predetermined price.

Porsche can also make use of operational strategy and using operational strategy Porsche will be able to make adjustments to its operations so as to be able to prevent all possible risks associated with currency fluctuations that may take place in future. Under this Porsche can make use of diversification in financing (by seeking capital and finance from different countries’ capital markets), by sourcing flexibility (acquiring parts from different suppliers in different countries) and by expanding its car production facilities and sales to new markets across the globe.