How is Chemex affected by exchange rate changes?
Chemex, a U.S. maker of specialty chemicals, exports 40% of its $600 million in annual sales: 5% to Canada and 7% each to Japan, Britain, Germany, France, and Italy. It incurs all its costs in U.S. dollars, while most of its export sales are priced in the local currency.
a. How is Chemex affected by exchange rate changes?
b. Distinguish between Chemex’s transaction exposure and its operating exposure.
c. How can Chemex protect itself against transaction exposure?
d. What financial, marketing, and production techniques can Chemex use to protect itself against operating exposure?
e. Can Chemex eliminate its operating exposure by hedging its position every time it makes a foreign sale or by pricing all foreign sales in dollars? Why or why not?