Question

Molton Inc is a small international manufacturing company. They have a global supply chain and their products are bought and sold globally in several currencies. They employ a consulting firm to strategically advise them on exchange rate fluctuations. Do you consider Molton Inc’s strategy to be a reasonable one? In your answer consider alternate exchange rate strategies and advise Molton Inc what you consider their best strategy to be.

Word limit-400 words. (should be at least 350 words)

Use at least 1 example.

Answer 1

Ans:

Molton inc is a Manufacturing company which ahs global presence of business. It operates business in several currencies. The company is buying raw material from different countries around world that is why it is not possible for company to do transaction with same currencies as it is in its own domestic country.

There fore for doing business in many countries financial transactions are done with respect to several foreign currencies at exchange platform.Economy of all countries are not remain stable. it sometimes up and down resulting currency fluctuation occurres between countries of who do business transaction among themselves.

In my opinion Molton inc Strategy to acquire consulting firm for their currency fluctuation determination is reasonable one. Because the company has its main focus on trading in various countries so for that regular consulting is required.

In this senerio Molton inc can go for two alternative exchange rate system . one is fixed exchange rate system which tell one country can fix their currency with basket of foreign currencies specfically for transaction and otherone is the company need to see whether its currency is freely floated against othger currencies or not.

In order to manage currency rate fluctuation One strategiy is Use Forward exchange contract, which hepls the company when it does imports or exports or about to do financial settlement, The forward exchange contract can help it from currency fluctuation. In this method or strategy, it can buy the currency amount and sell it at fixed rate in an another future date.

Another strategy company can choose is currency option . when market goes in your favor we do treansaction, in this way company can hedge risk of currency fluctuation.

Here main problem is company is doing trade in several countries, to manage transaction risk the molton inc company can adopt

a: forward exchange contract transaction, b: Currency option

And finally it can use ETF exchange traded fund which can deal with actual performance of currencies focusing on currency exposure and specfic situation. It can adjust big amount of currency risk and save loss arise due to fluctuation in the market.

Example: Suppose trade between two companies are decide to be done in forward exchange contract. one indian firm and other japanese firm.

currency at current ime is one INR equal to 95 YEN . Trade is fixed for seven month payment settlement. After seven months situation can be favourable let say One INR equal 97 YEN . But transaction to be made at previously decided rate due to forward exchange contract.So in this scene Currency fluctuation risk is mitigated wisely.

So molton inc should apply these mentioned strategies to avoid currency fluctuation.