Business

Mini-Case Check the Euro and Ship the Boxes! In 2001, Kim Reynolds, president of Markel Corp., located in Plymouth Meeting, Pennsylvania, had to take a 40% pay cut to offset the effects of a skyrocketing dollar. Markel, which makes Teflon-based tubing and insulated wire used in the automotive, appliance, and water-purification industries, has developed a […]

Application A.T. Cross Marks Down Its Pen Prices In February 1993, following a 10% decline in the dollar (from ¥123 to ¥111), A.T. Cross cut the yen prices of its pens by 20%. For example, a 10-carat gold Cross pen was marked down to ¥8,000 from ¥10,000. Suppose that the manufacturing and shipping costs of

Pricing Strategy. The key issue that must be addressed when developing a pricing strategy in the face of currency volatility is whether to emphasize market share or profit margin. Following dollar depreciation, for example, U.S. exports will gain a competitive price advantage on the world market. A U.S. exporter now has the option of raising

Market Selection. Major strategic considerations for an exporter are the markets in which to sell—that is, market selection—and the relative marketing support to devote to each market. As a result of the strong dollar during the early 1980s, for example, some discouraged U.S. firms pulled out of markets that foreign competition made unprofitable. From the

Marketing Management of Exchange Risk The design of a firm’s marketing strategy under conditions of HC fluctuation presents considerable opportunity for gaining competitive leverage. Thus, one of the international marketing manager’s tasks should be to identify the likely effects of a currency change and then act on them by adjusting pricing and product policies. Place

Managing Operating Exposure The basic message of this section is straightforward: Because currency risk affects all facets of a company’s operations, it should not be the concern of financial managers alone. Operating managers, in particular, should develop marketing and production initiatives that help ensure profitability over the long run. They should also devise anticipatory or

Summary of Economic Exposure Impact of Krona Devaluation on Spectrum Manufacturing ab *Includes a gain of $150,000 on loan repayment. This section presents a workable approach for determining a firm’s true economic exposure and susceptibility to exchange risk. The approach avoids the problem of using seat-of-the-pants estimates in performing the necessary calculations.5 The technique is

An Operational Measure of Exchange Risk The preceding example demonstrates that determining a firm’s true economic exposure is a daunting task, requiring a singular ability to forecast the amounts and exchange rate sensitivities of future cash flows. Most firms that follow the economic approach to managing exposure, therefore, must settle for a measure of their

Partial Increases in Prices, Costs, and Volume. In the most realistic situation, all variables will adjust somewhat. It is assumed here that the sales price at home rises by 10% to SKr 22 and the export price rises to SKr 24—still providing a competitive advantage in dollar terms over foreign products. The result is a

Krona Sales Prices and All Costs Rise; Volume Remains the Same. It is assumed here that all costs and prices increase in proportion to the krona devaluation, but unit volume remains the same. However, the operating cash flow in kronor does not rise to the same extent because depreciation, which is based on historical cost,