Business

Questions 1. What factors affect Embraer’s operating exposure? Why did the real’s appreciation reduce Embraer’s operating profits? 2. Did Embraer decrease or increase its currency risk by hedging its dollar liabilities? Explain. 3. How can Embraer use financial hedging to reduce its currency risk? 4. Suppose that Embraer’s $608 million in dollar receivables mentioned earlier […]

  Mini-Case A Strong Real Hurts Embraer In August 2003, Empresa Brasileira de Aeronáutica SA (Embraer) of Brazil, the world’s fourth-largest aircraft maker, reported that net income had fallen by 87% for the second quarter, despite recent multibillion-dollar orders from JetBlue and US Airways, because of Brazil’s stronger currency and foreign-exchange hedging losses. Embraer President

Effect of Financial Structure on Net Cash Flow As mentioned earlier, this approach concentrates exclusively on risk reduction rather than on cost reduction. When financial market imperfections are significant, a firm might consider exposing itself to more exchange risk in order to lower its expected financing costs. Application South Korean Companies and Banks Mismatch Their

Statement of Projected Cash Flow This example would certainly become more complex if the effects of taxes, depreciation, and working capital were included. Although the execution becomes more difficult, a rough equivalence between operating losses (gains) and debt-service gains (losses) can still be achieved as long as all cash flows are accounted for. The inclusion

Questions 1. Why does Porsche face more operating exposure than Mercedes or BMW? 2. Is Porsche really fully hedged through July 31, 2007? Suppose that gains on all its outstanding options were included in reported earnings for its fiscal year ended July 31, 2004. 3. Why would analysts be nervous if up to 75% of

Questions 1. Why does Porsche face more operating exposure than Mercedes or BMW? 2. Is Porsche really fully hedged through July 31, 2007? Suppose that gains on all its outstanding options were included in reported earnings for its fiscal year ended July 31, 2004. 3. Why would analysts be nervous if up to 75% of

Questions 1. Why does Porsche face more operating exposure than Mercedes or BMW? 2. Is Porsche really fully hedged through July 31, 2007? Suppose that gains on all its outstanding options were included in reported earnings for its fiscal year ended July 31, 2004. 3. Why would analysts be nervous if up to 75% of

Mini-Case Porsche Revs Up Its Results The strong euro dented the profits of most European automakers in 2004, but Porsche found a way to turbocharge its profits—despite the fact that Porsche has greater exposure to currency risk than most of its peers. Unlike Mercedes or BMW, both of which have U.S. plants, Porsche makes its

Application DaimlerChrysler Hedges Its Operating Exposure In August 2003, DaimlerChrysler AG acknowledged that more than half its second-quarter operating profit was generated by foreign exchange hedging transactions. In July, the automaker had reported a quarterly operating profit of €641 million, beating analyst expectations. At the time, the company said that currency trading activities to reduce

Financial Management of Exchange Risk The one attribute that all the strategic marketing and production adjustments have in common is that accomplishing them in a cost-effective manner takes time. The role of financial management in this process is to structure the firm’s liabilities in such a way that during the time the strategic operational adjustments