Question

Consider two Thai firms listed on the Bangkok stock exchange:
• Thai A is a mining company that exports a large part of its minerals production. Much larger competitors can be found in Latin and North America. The market price of its production is largely determined in dollars on the world market.
• Thai B imports various engine parts from Europe and the United States. The demand for its product is highly price elastic. A significant rise in baht prices lowers the demand.

What will happen to the earnings and stock prices of the two companies if there is a sudden and large devaluation of the Thai baht against major currencies?

Answer 1

If there is a sudden devaluation of Thailand currency-

THAI A-this firm is a major exporter of minerals into Northern America so this firm will have receivables in dollars and it will be more exposed to any devaluation in dollars. It will be gaining through any depreciation in Thailand baht. This firm will gain through appreciation in dollar against Thailand baht and its revenues and earnings will go up. If the earning of this company will go up, stock price will simultaneously go up.

THAI B-this firm is a major domestic oriented firm which is more sensitive to any depreciation in the value of Thailand domestic currency, so if the domestic currency falls and since this company imports, so the value of payables will go up significantly, and the demand will also consequently slow down.this firm will lose in form of depreciation of domestic currency and appreciation of dollars and this firm will gain in-form of appreciation of domestic currency and depreciation of dollar, so in this case since the value of Thailand domestic currency is declining, this firm will lose its market share as demand for its product will subsequently go down and it will also be impacted in the form of high payables. Since the demand of his product will go down, the earnings will go down and the share price will go down too.