Question

Starbucks defines market risk in its 10-K. How is this defined, what steps does it take to manage it financial risk in these areas: commodity price risk, foreign currency exchange risk, equity security price risk, and interest rate risk? (Look in SEC EDGAR site).

Answer 1

Starbucks is one of the leading coffee retailer of U.S.A.It has internationally established many coffe houses.They mainly stated two market risks associated with their business in 10-k.They are;

ECONOMIC CONDITIONS;-Starbucks have stated that an increase or decrease in economic conditions of U.S or other international countries have great impact on their business.A downfall in economic conditions,increases in taxes,fares,job losses,bank ruptcies may decrease thier sales which inturn might result in losses to the company.

MAINTAINING THE BRAND NAME;-Maintaining their brand's name by not compromising on the value of product being served has direct effect on their finances.Failure in not maintaining the standard promised might lead to downfall in profits.

Commodity price risk is the risk associated with uncertainity of prices of the products.This affects both the producer and consumers.Starbucks manages in maintaining their commodity price risk by either increasing or decreasing their prices likewise.

Foreign currency exchange risk is managed by starbucks corporation by operating their firms depedning on their existing business scenario in the area they are located.This way minimizes the financial risk of lower currency exchange.

Equity security price risk is the risk associated with the prices in relation to the security provided.Starbucks maintain their security levels by adopting new approaches.

Interest rate risks are the risks associated with a change in interest rate of a commodity.The interest rate risks are managed by Starbucks group by maintaining their prices depending on the persisting .interest rate .