Download Managing in the Global Economy Foreign Exchange Risk

MANAGING IN THE GLOBAL ECONOMY
FOREIGN EXCHANGE RISK
MANAGEMENT
Mohammad Arief
1
INTRODUCTION
GLOBAL
ECONOMY
The reduction of
trade barriers
The opening of
markets to
foreign imports
Increased the
competitive
pressure
ENTRY TO THE
FOREIGN
COUNTRIES
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FORBES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Carlos Slim (Mexico) - 53.5 milyar dolar AS, telekomunikasi
Bill Gates (USA) - 53 milyar dolar AS, Microsoft
Warren Buffett (USA) - 47 milyar dolar AS, Berkshire Hathaway
Mukesh Ambani (India) - 29 milyar dolar AS, Petro kimia, minyak
dan gas.
Lakshmi Mittal (India) - 28.7 milyar dolar AS, Baja.
Larry Ellison (USA) - 28 billion, Oracle
Bernard Arnault (France) - 27.5 milyar dolar AS, LVMH
Eike Batista (Brazil) - 27 milyar dolar AS, penambangan, minyak.
Amancio Ortega (Spain) - 25 milyar dolar AS, pengusaha.
Karl Albrecht (Germany) - 23.5 milyar dolar AS, supermarkets
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Richest Company (Fortune)
Royal Dutch Shell - (Total revenue USD 247,613 miliar, Profit 27,909
miliar)
2. Wal-Mart Stores - (Total revenue USD 469,162 miliar, Profit 16,999
miliar)
3. Exxon Mobil - (Total revenue USD 449,886 miliar, Profit 44,880 miliar)
4. Sinopec Group - (Total revenue USD 428,167 miliar, Profit 8,221 miliar)
5. China National Petroleum - (Total revenue USD 408,630 miliar, Profit
18,196 miliar)
6. BP - (Total revenue USD 388,285 miliar, Profit 11,582 miliar)
7. State Grid - (Total revenue USD 298,449 miliar, Profit 12,318 miliar)
8. Toyota Motor - (Total revenue USD 265,702 miliar , Profit 11,587 miliar)
9. Volkswagen - (Total revenue USD 247,613 miliar, Profit 27,909 miliar)
10. Total - (Total revenue USD 234,278 miliar, Profit 13,743 miliar)
1.
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FACTORS INFLUENCES
Market Driven
Why The Firm
Entry To The
Foreign
Countreis
Cost Driven
Supported with
Competitive
Driven
Government
Driven
Regional Trading
Agreements
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REGIONAL TRADING AGREEMENTS

The European Union (EU)

A unified economic and trade entity



Belgium, Denmark, France, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, the United
Kingdom, Germany, Austria, Finland, and Sweden
Economic and monetary union (Euro)
North American Free Trade Agreement (NAFTA)

Eliminated barriers to free trade (tariffs, import
licensing requirements, and customs user fees)

United States, Canada, and Mexico
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EUROPEAN UNION COUNTRIES
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REGIONAL TRADING AGREEMENTS (CONT’D)
U.S.-Central America Free Trade Agreement
(CAFTA)
 Free Trade Area of the Americas
 Southern Cone Common Market (Mercosur)
 Association of Southeast Asian Nations (ASEAN)


Trading alliance of 10 Southeast Asian nations
African Union
 South Asian Association for Regional Cooperation
(SARRC)

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ASEAN MEMBERS
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HOW ORGANIZATIONS GO GLOBAL
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IMPORT-EXPORT SALES AND EXCHANGE
RATES
Import/export sales and profit margins are very sensitive
to changes in exchange rates
Risk
1
2
3
Transaction risk exposure
Occurs when a purchase agreement or sales
contract (a specific “transaction”) commits
the company to make future payables or
accept future receivables in a foreign
currency.
Translation risk exposure
Occurs when a company’s foreign assets (or
liabilities) are affected by persistent
exchange rate trends.
Operating risk exposure
Operating risk exposures are more difficult to
hedge than transaction risk exposures and
more difficult to forecast than translation risk
exposures
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OUTSOURCING
Outsourcing to foreign contract manufacturers is,
however, as much about importing competitiveness as it
is about exporting jobs
●
●
●
Technology
Less complex assembly
Raw materials handling
tasks to places
Determine
Time-to-market and the capacity to innovate quickly
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THE MARKET FOR FOREIGN EXCHANGE
Determinants of Foreign Exchange rates in countries
(Short Run) :
 Import/Export Flows and Transaction Demand for a
Currency
 The Equilibrium Price
 Speculative Demand, Government Transfers, and
Coordinated Intervention
 Short-Term Exchange Rate Fluctuations
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DETERMINANTS OF LONG-RUN TRENDS IN
EXCHANGE RATES
The Role of Real Growth Rates
 The Role of Real Interest Rates

The higher the real rate of interest in an economy, the
greater the demand for the financial assets offered by
that economy

The Role of Expected Inflation
Inflationary expectations provide an important third
determinant of long-term trends in exchange rates.
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INTERNATIONAL TRADE: A MANAGERIAL
PERSPECTIVE






Shares of World Trade and Regional Trading
Blocs
Comparative Advantage and Free Trade
Import Controls and Protective Tariffs
Strategic Trade Policy
Increasing Returns
Network Externalities
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