Question

Foreign currency analysis of Merck & Co. which is s an American multinational pharmaceutical company and one of the largest pharmaceutical companies in the world.

Explain the business activities and environment of Merck & Co. from the perspective of foreign currency and identify three currencies that Merck & Co. is exposed against. This can be due to its business structure (i.g. location of factories, customers and suppliers, and the currency that the products/services are quoted), and arising from the competition against its rivals. State the rationales of your selection and references.

Answer 1

Merck & Co. is exposed to multiple currencies. Out of these Euro, Yen and Renminbi have the most exposure on Merck & Co. This is due to the various manufacturing plants, packaging facilities, research facilities, employees, customers, etc. found all over the world and particularly in the Eurozone (Luxembourg, Sweden, Germany, Italy, Hungry, France, Dennmark, ets.), China and Japan. Merck & Co. was established in 1668 and is one of the largest and most innovative companies in the pharmaceutical industry.

In 2018, Merck & Co. celebrated its 350th anniversary in Shanghai. The same year, Merck & Co. generated sales of €1.9 billion in the country, an increase of more than 18% over the previous year. China is thus the largest growth driver for Merck, with the highest sales after the United States. And in the business units Display Solutions (Performance Materials) as well as General Medicine&Endocrinology (Healthcare), China is already the number one global market for Merck & Co. Therefore, the Chinese currency Renmimbi has always had a huge exposure on Merck and hedging Renmimbi a top priority. Merck has huge plans in China, it plans to reach out every chinese citizen by 2025. It hopes to treat as many as 40 million patients by 2025 and has already invested a fortune in China.

Merck & Co. has employees doing research all over the world and in particular in Germany, the United States and has recently began in China as well, with Guangzhou being the Innovation hub of Merck & Co. in China.

Merck & Co. is also involved in multiple donation programs in underdeveloped countries like Kenya and works hand in hand with WHO on multiple sites which again is responsible for the vast currency exposure. Merck & Co. have reached more than 12,000 teachers throughout Kenya as part of the schistosomiasis program.

As a global employer, people from a total of 136 nations work for Merck & Co. 24.1% of Merck & Co employees are German citizens and 73.9% of their employees work outside Germany.

In order to protect itself from the changes in foreign exchange rates and the corresponding currency risk and interest rate risk. In order to protect itself from these risks, the Company has established revenue hedging, balance sheet risk management, and net investment hedging programs and uses various derivative instruments including different types of Swaps and Forwards.