The Foreign Exchange Rate of Any Country Is Very Important Discussion Responses

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1- As the Chief Finance Officer in my company, I will consider hedging. Hedging will protect my company against probable losses that result from fluctuations in currency exchange rates. This decision to hedge is made after considering the two factors: The enormous amount (nearly 5 Billion) of revenue at risk of currency fluctuations and the appreciating local currency against foreign investments. While hedging comes at a cost, it is an international investor’s best hope at offsetting the risk of adverse price movement.

There are several market strategies used to offset the risk of price movement. My company will use the forward contract directive. This directive will be efficient for the procurement of production material and the sale of finished products. Let us assume that my company sells finished products to Germany. If the dollar is appreciating against the Euro, the risk on the returns is high hence hedging will be a wise decision. My company will enter into a forward contract that stipulates that our products will be sold at a specified price regardless of the exchange rate at the time. If the dollar continues surging, the contract will help minimize the risk.

2- International businesses like Walmart should be concerned with foreign exchange rates because a country’s foreign exchange rate effects a business profitability. Foreign exchange rates effect a company’s unit sales, prices, and costs of products. It also helps to avoid a drop in the value of a country’s currency the US dollar. In the case of Walmart, if the company is able to have a fixed exchange rate the company locks in the product costs and sets the price that one currency will convert to another.

International businesses such as Walmart use hedging as a strategy to mitigate risks due too foreign exchange fluctuations by making sure the currency exchange rate is fixed and in the purchasing contract with the suppliers in that country. With fixed exchange rate, international businesses like Walmart are able to lock in the cost which helps against fluctuations. They also open up local businesses in the country to lower risk and do business with local currencies.

If I were the CFO of Walmart, I would influence the CEO to continue to buy from China even though I am aware of China keeping their exchange rate artificially low. Although China has more of a competitive edge overall on the US with having an artificially low exchange rate if they were to raise RMB Walmart would have to raise the prices on their products due to the company paying more for the products they purchase from China. Walmart is known for having items at low prices so if Walmart was required to raise their prices due to a higher exchange rate with China or any other country Walmart purchased their products from then they would not be following their market strategy. I think because it is saving Walmart money overall I would continue to influence the CEO too buy from China.