Great Britain Pound
Telling about the pair JPY vs USD, it can be seen on the Picture 4 a long-term down-trend (mentioned by www. plattx. com as “a price pattern characterized by subsequent falling highs and falling lows”) with a correction from March 2008 till August 2008. Thus, using both fundamental and technical analysis, the current research has shown the strength of Japanese Yen and Euro, which is supported with production and strong investors’ interesting, weakness of Great Britain Pound, which uses its positions, and moderate position of US Dollar, which is temporary depreciating to save US economy.
Also it was found out the equality of using such research methods as fundamental and technical analysis. Case Study: Going Global 2 part 1 In the case study it is offered to identify the types of foreign exchange exposure that applies to the business at this stage of its development and assess the likely impact of exchange rate movements and to decide whether ElecdyneWales is exposed to exchange rate movements. ElecdyneWales is located in Wales and going to sell its goods into Europe (the mail goal is to send company’s products in Germany).
Great Britain Pound, which becomes cheaper and which is the main currency for ElecdyneWales production is a good condition for export. Thus, a cheap GBP is profitable for ElecdyneWales. But, on the other hand, the Company has Japan suppliers, who use expensive Japanese yen for price counting as a main currency, can create a risk of high cost supply and components. From the brief paper from Justin Tyme, supply and component manager, it is clear that some components can be delivered from China instead of Japan with a risk of low quality.
But, paying the attention on a main goal – Germany, which customers are more quality rather price sensitive, it is also clear that exposure should be valued taking into account Japanese suppliers with their expensive yen but regular and quality of components. What about a pricing policy, it is clear from the briefing paper of Polly Ska, product and market manager, that there is no exact price or price policy for Europe zone as for now, thus, it will be possible to considerate and include exchange rates exposure in the price for German market. To value the exposure for this company, I would pay attention on the next facts:
• No foreign exchange exposure in Euro area increases willingness to trade (lower risk) • No transactions costs to convert currencies in Euro area lowers cost of trading • No hedging needed when trading in Euro zone which lowers costs • No need to translate accounts from different currencies where operations are in member states within Euro zone. Taking into account that ElecdyneWales feels the influence of three currencies – Japanese Yen, Great Britain Pound and Euro, at the first moment it seems the Company should face with all three types of exposure.
That’s why let’s discuss each exposure type to find out which exactly one applies to the business at this stage of its development. Starting from transaction exposure, it is possible to say this is “the risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations” (www. answers. com, 2008). ElecdyneWales can face this risk when, for example, it borrows Japanese components and pays for them after some time, when Japanese Yen becomes more expensive while GBP and EUR were stable.
Or the Company will sell a lot of goods in Europe with usual prices while Yen will become more and more expansive. Then, to buy a new lot of components, the Company will need much more money than it got from Europe sales. To avoid this risk, the Company should pay in time to Japanese suppliers and to not borrow goods which price is counted in Yen. What about sales in Europe, there are no prognoses that EUR can fall against GBP at the nearest time. But, to avoid the risk to sell goods cheaper than they were bought, the Company will need to change price for every lot of goods according to exchange rate.
Discussing the translation exposure (“The risk that a company’s equities, assets, liabilities or income will change in value as a result of exchange rate changes. This occurs when a firm denominates a portion of its equities, assets, liabilities or income in a foreign currency” (www. answers. com, 2008). As we know, ElecdyneWales is a Walsh company, but it is a spin-off from Japanese Elecdyne. ElecdyneWales shouldn’t face this risk if it has own budget. In case, if accounts translated from one currency to other, this risk can be actual.
What about economic exposure (“An exposure to fluctuating exchange rates, which affects a company’s earnings, cash flow and foreign investments” (www. answers. com, 2008). Usually, companies with international business (import/export companies) face the risk of economic exposure because they always feel the movement of exchange rates. As ElecdyneWales is a company with 100% international business, which bases in Great Britain, has suppliers from Japan and is going to sell its goods in Germany, Italy and France, there is a high probability it will face this risk particularly.
ElecdyneWales is exposed to exchange rate movements because it feels the influence of Japanese Yen, Great Britain Pound and Euro. Bibliography Mueller A. 2008, What’s behind the Financial Market Crisis? Available from: < http://mises. org/story/3111> [03 January 2008] 2008, Forex fundamental analysis. Available from < http://www. ac-markets. com/forex-education/forex-fundamental-analysis. aspx > [03 January 2008] 2008. Forex technical analysis.
Available from < http://www. ac-markets.com/forex-education/forex-technical-analysis. aspx> [03 January 2008] Hwang B, Schaefer B, 2002, Addressing the Looming Financial Crisis in Japan. Available < http://www. heritage. org/research/asiaandthepacific/bg1530es. cfm> [03 January 2008] 2008. Market news. Available from <http://www. fxstable. com/extranews. html> [03 January 2008] Signification of exposure types. Available from <http://www. answers. com/Economic%20Exposure> [03 January 2008] Kelley, M. 2001. Foreign Currency Risk: Minimizing Transaction Exposure.
Available from <http://209. 85. 129. 132/search? q=cache:vIeJnXFWMmkJ:www. vsb. org/docs/valawyermagazine/jj01kelley. pdf+transaction+exposure&hl=uk&ct=clnk&cd=2&gl=ua> [03 January 2008] Heakal, R. Floating and Fixed Exchange Rates. Available from <http://www. investopedia. com/articles/03/020603. asp? partner=answers> [03 January 2008] Bergen, J. Forces Behind Exchange Rates. Available from <http://www. investopedia. com/articles/basics/04/050704. asp? partner=answers&viewed=1> [03 January 2008]Sample Essay of BuyEssay.org