CHAPTER 9 Management of Economic Exposure.doc

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1、CHAPTER9ManagementofEconomicExposureHowtoMeasureEconomicExposureInternationalFinanceinPractice:U.S.FirmsFeelthePainofPeso’sPlungeOperatingExposure:DefinitionIllustrationofOperatingExposureDeterminantsofOperatingExposureManagingOperatingExposureSelectingLow-C

2、ostProductionSitesInternationalFinanceinPractice:TheStrongYenandToyota’sChoiceFlexibleSourcingPolicyDiversificationoftheMarketR&DEffortsandProductDifferentiationFinancialHedgingInternationalFinanceinPractice:PorschePowersProfitwithCurrencyPlaysCASEAPPLICATIO

3、N:ExchangeRiskManagementatMerckSummaryMINICASE:EconomicExposureofAlbionComputersPLCHowtoMeasureEconomicExposure1SupposetheU.S.dollarsubstantiallydepreciatesagainsttheJapaneseyen.Thechangeinexchangeratea)CanhaveasignificanteconomicconsequencesforU.S.firms.b)C

4、anhaveasignificanteconomicconsequencesforJapanesefirms.c)CanhaveasignificanteconomicconsequencesforbothU.S.andJapanesefirms.d)NoneoftheaboveAnswer:c)2SupposetheU.S.dollarsubstantiallydepreciatesagainsttheJapaneseyen.Thechangeinexchangeratea)Willtendtoweakent

5、hecompetitivepositionofimport-competingU.S.carmakers.b)Willtendtostrengthenthecompetitivepositionofimport-competingU.S.carmakers.c)WilltendtostrengthenthecompetitivepositionofJapanesecarmakersattheexpenseofU.S.makers.d)NoneoftheaboveAnswer:b)3WhentheMexicanp

6、esocollapsedin1994,decliningby37percent,a)U.S.firmsthatexportedtoMexicoandpricedinpesowereadverselyaffected.b)U.S.firmsthatexportedtoMexicoandpricedindollarswereadverselyaffected.c)U.S.firmswereunaffectedbythepesocollapse,sinceMexicoissuchasmallmarket.d)Both

7、a)andb)Answer:d)Rationale:a)isobvious,thedollarvalueofrevenuefell.Answerb)islessobvious,butthosefirm’sMexicancustomerswerelessabletoaffordtheimportedgoods.4Whenexchangerateschange,a)U.S.firmsthatsellonlytodomesticcustomerswillbeunaffected.120Eun/Resnick4ea)U

8、.S.firmsthatsellonlytodomesticcustomerscanbeaffectediftheycompeteagainstimports.b)U.S.firmsthatsellonlytodomesticcustomerswillbeaffected,butonlyiftheyborrowinforeigncurrencytofinancetheirdomesti