Premium Essay

Risk of Doing Business Abroad

In: Business and Management

Submitted By dmr28904
Words 603
Pages 3
The Risk of doing Business Abroad

Risk of doing Business Abroad
How can a company eliminate the risk of foreign exchange rate while doing business overseas? Simple do not do business overseas. * Economic Exposure: When changes occur in rates, operating costs will make a product uncompetitive in the global market. Profits will be diminished. There is very little that a company can do about economic risk. * Translation Exposure: Currency exchange rates will reduce a company’s earnings and it will weaken the balance sheet. It can be argued that currency fluctuations have no significant impact on real assets. * Currency Exposure: this is caused by a negative move in a currency between the time when a contract is agreed and the time it is completed. ("Exchange rate risk," )
If the exchange rate of EUR/USD was 1.2868 in 30 days, what would be the impact on the company’s Profit and Loss at the time of the receipt of payment from the European customer? What would be the Economic exposure for the company? What would be the Translation Exposure if any? Include calculations.
The company is still making over the original $100,000.00 but the accounts receivable will need to be adjusted from the $138,680.00 to the current $128,680.00. Calculating the company’s receivables on a monthly basis will be a common event. This is done by taking the current exchange rate for the EUR/USD which is 1.2868 and multiplying that by the $100,000.00. This is an example of economic exposure due to the fact that 30 days ago the amount was $138,680.00 and now it is $128,680.00 this is a difference of $10,000.00. This is not a translation exposure; the company is not losing below the original $100,000.00.
What would be the impact on the firm if the exchange rate was EUR/USD 1.4868 in 30 days? Discuss in relation to the three currency exposures in 2. Include calculations.
This…...

Similar Documents

Premium Essay

Doing Business in Malaysia

...Doing business in Malaysia Contents Foreword Chapter 1 - Introduction • • • • • • • • • • • • • • • • • • Geography & population Advantages of investing in Malaysia Language Political environment Economy Major exports and imports Import controls Regulatory environment Financial services Currency denomination Exchange controls Government policy on foreign investment Communications 5 6 Chapter 2 - Intellectual property protection Patents Trade Marks Industrial Design Layout Design of Integrated Circuits Geographical Indications 19 PKF – Doing business in Malaysia 2 Chapter 3 - Business Structure • • • • • • • • • • • • • Types of business structures Companies limited by shares Companies limited by guarantee Foreign companies and foreign investments Sole proprietorship and partnerships Trusts 24 Chapter 4 - Business Finance Equity financing Loan Funding Grants & soft loans 28 Chapter 5 - Investment Incentives Manufacturing Multimedia Super Corridor Status Operational Headquarters International Procurement Centres / Regional Distribution Centres 35 Chapter 6 - Accounting • • • • • • • • • • • • Statutory Accounting Requirements Audit Requirements Accounting Standards 60 Chapter 7 - Taxation Overview of taxes in Malaysia Scope of taxes: Residency Sources of income liable to tax The Tax Year Payment of Tax Corporation tax Interest Deductions Interaction with International Tax Regime Taxation of Partnerships &......

Words: 23067 - Pages: 93

Free Essay

Business Risk

...A risky business Dodie: We are all here now. As you know that Zelal Sulen is our new boss now. After she took up the official post, she found that Hi-Style is out of touch with its target consumers and is losing direction. As the member of manager consultants, for this point, today we need to think out at least two options to advise her to improve the situation. Am I understood? And think a while... Okay, let's make a start. Who want to speak first? Lily: Well, in my opinion, Hi-Style could allocate £10m to new investment in the business. For example, it could improve distribution and sales through an exclusive agreement with a major retailer, which could provide a steady marketing channel. Second, to launch new product ranges with major advertising campaigns. Thus, new products will be known to customers. Hi-Style could definitely reach wide publicity. Thirdly, to employ brand development consultants so as to improve its image. Brand development consultants are more professional so that better brand image will be built, leading to its properous future. Fourthly, to hire a top retailing executive to run the business. Therefore, the business will be more smooth and sales will be increased. The last one is to commission City Associates to do a thorough review of all Hi-Style's activities, from which Hi-Style could catch a better understanding of the whole business to control its operation. Dodie: Good.Thanks. Lily. And what's your opinion, Serena? Serena: Well, I prefer......

Words: 1463 - Pages: 6

Free Essay

The Risks of Doing Business in China

...The Risks of Doing Business in China Despite recent measures to curb corruption, foreign investors doing business in China must remain vigilant. Tuesday, June 04, 2013 , By Jim Barratt and Jimmy Ko China's economy is the second-largest in the world and continues to grow at an astonishing rate. Just recently, in fact, the Asian Development Bank forecasted that China's economy will grow by 8.2% this year. However, while economic growth brings business opportunities to all investors, continued widespread corruption in China has affected its government's legitimacy in maintaining prosperity in the region and can bring a multitude of risks to financial services companies that are doing business there. With China's recent transition to new leadership complete, it has been interesting to observe the ruling party's heightened focus on tackling corruption. Under China's new president, Xi Jinping, it has conducted a visible anti-corruption drive and imposed austerity measures in an effort to curb the display of wealth by government officials and generate goodwill among the Chinese population. While critics say that the recent measures target only the most conspicuous displays of wealth by government officials, the anti-corruption drive has already netted dozens of officials. Moreover, some perceive that the recent election of Wang Qishan as the new head of China's anti-graft body, the Central Commission for Discipline Inspection (CCDI), signals that the financial sector could...

Words: 3430 - Pages: 14

Free Essay

Doing Business in

...Doing Business In (Report) Leeds Metropolitan University Module: Global Business Context Doing Business In... Index 1. Introduction .................................................................................................................. 3 2. Justified country choice ................................................................................................ 3 3. Most important Characteristics seek by the company. ................................................. 4 4. How Australia fulfils the requirements. ....................................................................... 5 5. Relevant Aspects of the Australian Macro and Micro Environment............................ 6 5.1 Macro Environment. ............................................................................................... 6 5.2 Micro Environment................................................................................................. 6 6. Conclusion .................................................................................................................... 7 7. Bibliography ................................................................................................................. 8 Page 2 Doing Business In... 1. Introduction Firstly, the focus of this report will be to analyse conclusions from Global Business Context task 2 and with suitable references indicate the most appropriate country to export my student support agency service. Likewise the......

Words: 2514 - Pages: 11

Free Essay

Ethical Business Abroad

...Recently Piggly Wiggly has been looking into taking their services abroad and opening grocery stores in the State of Kuwait. In order for them to have a successful business abroad, they must abandon the customs of business that they have been used to and adhere to the ways of the Kuwaiti people. Research up front is vital as to not offend the customers, the vendors, and/or the government. Company Background Piggly Wiggly was founded in 1916 by Clarence Saunders. The first location was in Memphis, TN. What set Piggly Wiggly apart from other grocery stores was that it was the first self-service grocery store. Up until that point, a grocery list was handed to an employee who then picked all the items behind the counter and rang the items up. This innovation paved the way for checkout stations, high volume/low profit margin shopping, and having all products marked with their price. They pride themselves on value and freshness of product coupled with a clean environment. Kuwait Information Kuwait is located in the Middle East between Iraq and Saudi Arabia and borders the Persian Gulf. It is relatively small at 6,880 square miles, which is a little smaller than the state of New Jersey. There are about 2.6 million people in Kuwait as of 2012. It was in conflict with Iraq in 1990 and had to rebuild it’s infrastructure. The relationship was volatile until 2003 when Iraq’s leader was overthrown. Since then the economy has vastly improved and it is the 8th richest country in the......

Words: 1180 - Pages: 5

Premium Essay

Play It Safe at Home, or Take a Risk Abroad

...Play It Safe at Home, or Take a Risk Abroad Coe’s investors are expecting the business to keep growing but the executive team doesn’t know where to expand – Mexico, Europe or US. A venture in Puerto Rico a few years before had failed miserably and it’s making the executive team very cautious. Even though Stan has the voice of the consumer urging him to open stores in Mexico, they need to think it through and decide very carefully, not to repeat the mistake made in Puerto Rico. I think the company should move to expand into Mexico, but do so cautiously due to their lack of exposure of running business in a cross-cultural environment. Mexico is a completely new market that could very well diversify the risk of the company and give the company the advantage of being the first of its kind in Mexico. Stan knows the business very well but should first probably test the concept in some border cities. Talking to furniture stores and consumer lenders would also broaden his perspective, but more important is to listen to consumers directly, perhaps using questionnaires. This process would provide Stan with the feedback he is looking for to set up a pilot in a border town. They should place Coes next to Walmarts, as they did in the States because they target same customers. The risks would be lower than Puerto Rico, which is quite different to Mexico and geographically isolated, meaning that the Mexican pilot could be managed much closer, and more cost-effectively. I......

Words: 286 - Pages: 2

Free Essay

Doing Business

...Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing Business Doing......

Words: 512 - Pages: 3

Premium Essay

Doing Business in Malaysia

...you are planning on doing business in Malaysia knowledge of the investment environment and information on the legal, accounting and taxation framework are essential to keep you on the right track. Doing business in Country Name Contents Page Foreword Country Profile Regulatory environment Finance Imports Business entities Labour Financial reporting and audit Contact details 1 2 4 6 7 8 10 13 18 Doing business in Malaysia 1 Foreword SJ Grant Thornton is a member firm within Grant Thornton International. SJ Grant Thornton was established in 1974 and ever since, has progressed expeditiously in every aspect. We provide innovative, yet practical advice in a range of assurance, tax and specialist services to privately held businesses and public interest entities. Today, we are ranked as one of the leading accounting and consulting firms in Malaysia. We operate from our main office in Kuala Lumpur and other offices in Penang, Johor Bahru and Kuantan. Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms providing assurance, tax and specialist advice to privately held businesses and public interest entities. The strength of each local firm is reflected in the quality of the international organisation. All Grant Thornton International member firms share a commitment to providing the same high quality service to their clients wherever they choose to do business. This guide has......

Words: 5216 - Pages: 21

Premium Essay

Doing Business

...August 31, 2014 Mohamed Eissa Doing Business in Global Markets and the Effect Technology Has On The Industry There is no one nation, even with all of todays advanced technology, that can produce all the products its people want or need. Since the beginning of time nations have traded with other nations to get things their people wanted or needed. One reference that comes to mind is the many ships carrying gold, silver and other valuable goods that traveled from Europe to South America to trade their goods for spices. Exporting simply means selling a foreign country or companies goods and Importing means buying a country or companies goods. There are 194 countries that make up the global market. Some of these nations such as Venezuela and Russia have abundant natural resources but have little technological know- how, while other countries such as Japan and Switzerland have few natural resources but are rich in technological know- how. Through the process of free trade they can buy or trade their goods or money for things their countries need or want. Free trade is the movement of goods and services among nations without political or economic barriers. Countries also exchange more than goods and services, such as medical advances, space exploration and even labor. There are two theories of this exchange. The first is the Comparative Advantage which states that a country should sell to other countries the products it produces most effectively and efficiently,......

Words: 990 - Pages: 4

Premium Essay

Doing Business

...Business Driven Technology Unit 5 Transforming Organizations McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Unit Five O Chapter Seventeen – Building Software to Support an Agile Organization O Chapter Eighteen – Managing Organizational Project O Chapter Nineteen - Outsourcing in the 21st Century O Chapter Twenty – Developing a 21st-Century Organization 18-2 Chapter 18 Managing Organizational Projects 18-3 LEARNING OUTCOMES 1. Explain the triple constraints and its importance in project management 2. Describe the fundamentals of project management 18-4 MANAGING SOFTWARE DEVELOPMENT PROJECTS O Analysts predict investment in IT projects worldwide through 2010 will be over $1 trillion O 70 percent will be lost due to failed projects O The consequences of failed projects include: O O O O O Damaged brand Lost goodwill Dissolution of partnerships Lost investment opportunities Low morale 18-5 The Triple Constraint O Project management interdependent variables 18-6 The Triple Constraint O Benjamin Franklin’s timeless advice - by failing to prepare, you prepare to fail - applies to software development projects O The Hackett Group analyzed 2,000 companies and discovered: O Three in 10 major IT projects fail O 21 percent of the companies state that they cannot adjust rapidly to market changes O One in four validates a business case for IT......

Words: 454 - Pages: 2

Free Essay

Doing Business in India -Business Culture

...Doing Business in India India is a richly diverse and complex country. Regionalism, religion, language and status are all factors that need to be taken into account when doing business in India. Behaviour, etiquette and approach are all modified depending on whom you are addressing and the context in which they are being addressed.  By tailoring your behaviour and approach to doing business in India you maximise the potential of your visit.   Indian Society and Culture Language Different states in India each have different official languages. Central government only recognises Hindi as the official language of India. However, when doing business in India, English is the language of international commerce. Hierarchy * Indians are always conscious of social order and their status relative to other people, be they family, friends, or strangers. * All relationships involve hierarchies. The boss is seen as the source of ultimate responsibility in business. Every relationship has a clear- cut hierarchy that must be observed for the social order to be maintained. The Role of the Family * People typically define themselves by the groups to which they belong rather than by their status as individuals. Someone is deemed to be affiliated to a specific state, region, city, family, career path, religion, etc. * Indians maintain very close family relationships. The extended family creates countless interrelationships, rules, and structures. Along with these mutual...

Words: 1381 - Pages: 6

Premium Essay

Doing Business with Brazil

...Doing Business in Brazil Transfer Paper: International Management Project: Investing in Real Estate Florent Carayon 1 1 – What is the Business Environment in Brazil? a) Over all idea about the country: The word "Brazil" comes from Brazil wood, a tree that once grew plentifully along the Brazilian coast. * Brazil, officially the Federative Republic of Brazil, is the largest country in both South America and the Latin American region. It is the world's fifth largest country, both by geographical area and by population. • • • • • • • • • • • • Capital: Brasília Dialling code: +55 Currency: Brazilian real President: Dilma Rousseff Official language: Portuguese Life expectancy: 74 Over All Idea about the Country Currency: Brazilian real (BRL, R$) Population Total: 200.4 Million Fiscal year: Calendar year Trade organisations: Unasul, WTO, Mercosur, G-20 and others GDP: $ 2.246 Trillion (2013), rank: 7th GDP growth: 2.3%. b) Business environment: The Federal Republic of Brazil is the fifth largest country in the world in terms of population (196 million) and size. It is the 8th largest economy (by GDP – purchasing power parity) in the world. Already the 8th largest economy in the world, Brazil has undoubtedly arrived at an important crossroads. Not only is its population rising by approximately two million people a year, but the inexorable shift towards mass urbanisation continues unabated. UN estimates predict that by 2015, 33...

Words: 3203 - Pages: 13

Premium Essay

Doing Business

...buying of land. The company had agreed to do business with another company for the sale of land and both CEO of the two parties had already agreed on prices. Therefore, the report would how well the company will deal with the first customer and be able to cope with the problem that has emerged. (Chavez & Maes, 2006, April). It is with regard that I am reporting on an issue that had already been realized which is difficult to agree or disagree with. We were selling the land to company WXYZ but due to an appreciation of land within no time, we are ready to shift your deal to the billionaire who is willing to buy the land for a good price. The CEO to the company made a mistake in having an oral contract with the other party. This is because, if you promise to sell something to someone else, you have already made the contract. Apart from promising to sell the land, the CEO had already received ten thousand US dollars to make the contract live. As everyone is aware that a contract is a legally enforceable agreement between two or more parties. We as the company after realizing that we have made a woeful contract it is not a wise decision to get out of the deal. (Galaty, 2002). Therefore, the contract is real but we want to come out of it. The only alternative we can have is asking the other company whether they are willing to pay the amount the billionaire is willing to pay. If yes, we can assume the billionaire and do business with the company. If they are not ready......

Words: 612 - Pages: 3

Free Essay

Doing Business in Vietnam

...Doing Business in Vietnam: 2009 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2008. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. • • • • • • • • • • Chapter 1: Doing Business In Vietnam Chapter 2: Political and Economic Environment Chapter 3: Selling U.S. Products and Services Chapter 4: Leading Sectors for U.S. Export and Investment Chapter 5: Trade Regulations and Standards Chapter 6: Investment Climate Chapter 7: Trade and Project Financing Chapter 8: Business Travel Chapter 9: Contacts, Market Research and Trade Events Chapter 10: Guide to Our Services 3/3/2009 Return to table of contents Chapter 1: Doing Business in Vietnam • • • • Market Overview Market Challenges Market Opportunities Market Entry Strategy Market Overview Return to top • Vietnam is a true emerging market, offering ground floor and growing opportunities for U.S. exporters and investors. Vietnam’s economic growth rate has been among the highest in the world in recent years, expanding annually at 7-8.5 percent, while industrial production has been growing at around 14-15 percent per year. Vietnam’s macroeconomic challenges and the global financial crisis dampened this growth in 2008 and will continue to do so in 2009. • In response to significant macroeconomic challenges, including high inflation and a large and growing current account deficit,......

Words: 50261 - Pages: 202

Premium Essay

Doing Business

...DOING BUSINESS IN INDIA: India offers a stable and business friendly rules and regulations to start a new enterprise. Indian legal environment and policy attracts several foreign association and collaboration for doing business in India The factors that facilitates doing business in India: 1. The Indian economy is growing at a scorching pace * Gross Domestic Product during 2010-11: US$ 1518.2 billion (Rs 73.1 trillion) * Per capita income during 2010-11: US$ 1146.8  (Rs 54,835) 2. Foreign exchange reserves are rising * There is a steady flow of FDI: Amount of FDI inflows (for June 2011): US$ 5.6 billion 3. Exports are growing 4. Political factors: Better trade regulations and increase in the employment rate 5. Technological factors: Technological changes in India is for the growth of the country as there are new or improved distribution channels, improved communication and knowledge transfer 6. The capital market is booming. 7. Increasing demands of people for growth 8. Labor: India’s labor force is commonly viewed as being low-cost and highly skilled. Indeed, this perspective has induced several MNCs to out-source to India or to set up branches there 9. Infrastructure: Increase in private participation in infrastructure has lead to better results 10. Finance availability: There are large number of institutes that provide finance at a cheaper rate 11. R&D : research in comparison of the past has increased a lot...

Words: 472 - Pages: 2