Question

In: Finance

Assume you are in the manufacturing business here in the US, and your Company exports the...

Assume you are in the manufacturing business here in the US, and your Company exports the majority of its products overseas. Assume the US Dollar strengthens against many of the key the currencies of the countries into which you sell your products, and that seems to be a condition that will exist for some time.

a. How might that exchange rate move impact your Company and why would that be so?

b. What long term strategy might help your Company mitigate the impacts of the exchange rate shift and why might it be effective?

My thinking is that the responses may be between 1 and 3 pages

Solutions

Expert Solution

A. The strengthening of United State dollar will impact my receivables negatively because my receivables would mostly be in other currencies as I am an exporter.

As an exporter, I will have receivables in various other currencies and it will mean that I will always be opting for depreciation in the United States dollars because that will mean that my receivables are higher in nature because of the depreciation of dollars.

when the dollar will appreciate, it will have a negative impact on my receivables because it will lead to decrease in my overall value of receivables when accounted for exchange rates.

B. I will try to take various derivative contracts in order to mitigate my rest as well as I will try to do not just export to the other country but establish a subsidiary in other countries so that I will be protected against exchange rate risk because the subsidiary books of accounts is always incorporated into the parents books of accounts without much fluctuation in exchange rate as it is an intra-group transaction.


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