Tiffany is exposed to foreign exchange risk by selling directly to the Japanese market. When Tiffany sold wholesale to Mitsukoshi, Mitsukoshi bore all the foreign and exchange risk. Exchange rate risk relates to the effect of unexpected exchange rate changes on the value of the firm. Under this new agreement, Tiffany and Company are exposed to exchange rate risk subsequent to its new distribution agreement with Mitsukoshi due to the variable exchange rate. Japanese yen is usually more volatile and tends to fluctuate in the same direction as the US dollar. Since Tiffany is making profits in yen, they have to convert the yen to dollars to take back to their home country US. In addition, the future exchange rate can lead to decrease Tiffany 's profits because the yen is thought to be overvalued in comparison to the dollar. These risks are fairly serious because the extreme volatility in the exchange rate creates significant uncertainty in what the future exchange rate and profits will be. Moreover, there are three types of exchange rate risk that Tiffany is now exposed to:
a) Economic exposure: Unexpected yen and dollar fluctuations can greatly affect Tiffany 's future cash flows, market value and
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Tiffany has now substantial amount of yen cash inflow from their new arrangement of selling goods directly in Japan. Tiffany 's earning will fluctuate if it does not hedge this currency exchange risk. Since yen - dollar exchange rate is being volatile, it is best to hedge in order to help smooth Tiffany 's earning and reduce risk. However, the obstacle is that options prices are more expensive when there is more volatility. Because the yen is considered to be overvalued, there is speculation that it will depreciate in the future compared to the dollar. If the yen depreciates and Tiffany converts their yen at the current spot rate, then their dollars received will be
Saputo’s business is constantly affected by changes in the exchange rate as the majority of its business takes place outside of Canada. Due to the fact products and cash flows travel internationally, the company is exposed to economic exposures. Exchange exposure affects Saputo in many ways such as the cost of production and demand for their products. Transaction exposure affects Saputo when cash flows from foreign operations into Canada. Saputo is affected by translation exposure when foreign revenue is converted into Canadian dollars for its financial statements.
Question 1: a) Donna Gamble is an Aboriginal woman who lives in her hometown of Saskatoon, Saskatchewan. She is a former ward of the state and has spent a significant part of her youth inside juvenile correction centres. At a young age she started using drugs and alcohol as a form of escape and resorted to prostitution as a means of sustaining her habits. Donna has six children, all with the exception of the youngest two who were placed in the custody of child services. Donna has quit working as a prostitute and is currently on the road to recovery from years of addiction and abuse.
We pay close attention to exchange rates when making a decision. Depending on the exchange rate, we adjust how many shoes we will ship from our plants. If rates are better going from North America to another area than it would be coming from the Asia Pacific plant, we will use the North America plant to ship more shoes to those areas that have exchange rates that are more beneficial than shipping from the Asia Pacific plant. We also do the same thing with the Asia Pacific Plant; if exchange rates are more beneficial shipping to one location than another we will put more of our resources in those locations. Changing the number of shoes we ship from the different locations helps us to gain profit off of the exchange
Caterpillar Inc. also faces the risk of its cash flow and earnings being affected by fluctuations in the exchange rates of currency, commodity prices, and interest rates. To control for this, the company’s Risk Management Policy ensures prudent management of interest rates, commodity prices, and exchange rates of foreign currency by allowing the use of derivative financial instruments. According to the policy, the derivative financial instruments are not supposed to be used for the purpose of speculation. In its pricing strategy, Caterpillar Inc. faces the risk of difficult shipping of its products. This risk can be encountered by offering its products on instalments and lease to its loyal customers (Caterpillar, Inc. (CAT), 2011).
Metallgesellschaft (MG) took 1.8 billion dollars in losses not because their underlying positions and rationale were unsound, but because they were unable to roll over their stack hedge positions in the way that they anticipated and because they underestimated the amount of cash needed to fund their positions. The basic strategy employed by MG, or more specifically, Arthur Benson, who crafted MG’s derivatives strategy, was to sell contracts on petroleum and to hedge this exposure with a stack hedge. He had successfully implemented this strategy just a few years earlier at another firm. This stack hedge was then rolled forward upon expiration. MG sold forward contracts to its customers, selling them a fixed amount of gasoline at a fixed
Case Study: Victoria's Secret OVERVIEW Victoria's Secret, one of the world's most recognizable fashion brands, established itself in the Bay Area in the early 1970s. Originally owned by an ambitious Stanford graduate looking for a comfortable and high-end retailer to buy his wife lingerie, Roy Raymond opened the first store at Stanford Shopping Center. Styled after a Victorian boudoir, Raymond's success prompted him to open three other locations, a catalog business, and a corporate headquarters within a few years. His inability to balance finances with his creative vision, Roy Raymond fell into trouble and was forced to sell his company for the small sum of $1 million dollars to The Limited, an Ohio-based conglomerate owned by Les Wexner.
On the other hand, if the IDR/CNY exchange rate follows the forward rate quotes, the profitability of China would increase because the rupiah will be discounted against the yuan. When looking at the return on sales, they show that in the next five years, the profit of Noah would be high because the company will benefit from the rupiah that will be greatly discounted against the yuan. For instance, by 2015, the Indonesia rupiah would be approximately 2050 to 1 Chinese yuan.
Having established that the U.K. offers celebrities extremely limited rights over the use and distribution of their image for commercial purposes, and that case law indicates that the tort of passing off is applied on a somewhat unclear and inconsistent basis, the 2013 case of Robyn Rihanna Fenty and others -v- Arcadia Group Brands Limited acted as a landmark case with regards to publicity rights and the tort of passing off. (i) The Facts, Judgement and Effect Robyn Rihanna Fenty, most commonly known as the pop star Rihanna, brought proceedings against Arcadia Group Brands LTD (Topshop) over their use of her image on a T-shirt (see appendix one) that they produced without seeking Rihanna’s permission prior to use. The image in question had been taken by an independent
The expanding global market has created both staggering wealth for some and the promise of it for others. Business is more competitive than ever before, and every business, financial or product-based, regardless of size or international presence is obligated to operate as efficiently as possible. A major factor in that efficient operation is to take advantage of every opportunity to maximize profits. Many multinational organizations have used derivatives for years in financial risk management activities. These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same organizations.
In conclusion, hedging risk with financial derivatives can give firm range of benefits such as lower probability of having financial distress, lower value of debt ratio, and earn tax benefit. It can be concluded that firm should hedge risk using financial derivatives because lot evidence shows that firm using this strategy is more successful than those who are not. However, since different type of companies facing different risks, they should not necessarily use the same hedging strategy.
Economic risk is another type of exchange risks companies have to consider when dealing globally. Changes in exchange rates are bound to affect the relative prices on imports and exports, and that will again affect the competitiveness of a company. An UK exporter dealing with companies in the US would not want the US$ to depreciate, because it would make the exports more expensive for the US market, thus the company will loose business.
Sung C. Bae, Taekho Kwon, and Jongwon Park, 2004, Futures Trading, Spot Market Volatility, and Market Efficiency: The Case of the Korean Index Futures Markets, Journal of Futures Markets 24, 1195-1228
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
Victoria’s Secret represents the idea of sex sells as their main type of advertisement. When most people think about Victoria’s Secret they think bra’s but the product line varies it offers bra’s, panties, sleepwear, fragrances, swimsuits, clothing and shoes. Victoria’s Secret is an inspirational brand with sexy supermodels, top of the line photographers and aggressive advertising. Victoria’s Secret made buying lingerie not only an enjoyment but a must.
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...