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Business, Essays

Currency Exchange Risks

Currency Exchange Risks

Currency exchange risk is among the most significant risks affecting global business’ financial performance. When operating with more than one currency, a business must consider the potential risks of fluctuating exchange rates, affecting the company’s costs or revenues (Broll et al., 2011). This is what happened in the case of the Brazilian company Embraer. The fluctuating value of the Brazilian real affected the company’s purchases of raw materials in the United States and its revenues, given that its products are priced in U.S. dollars (Hill & Hult, 2019). When the value of the Brazilian real appreciated, the company got its raw materials at lower costs but was subjected to much lower revenues because the dollar revenue decreased when converted back to Brazilian reals. Other international businesses face similar challenges today. The following is an evaluation of some currency exchange risk effects on international businesses that operate from Brazil and serve the U.S. market.

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Identify the exchange rate of the Brazilian real and the U.S. dollar.

The U.S. dollar is valued at 3.99 Brazilian reals in the current foreign exchange market. The current value of the real has significantly deprecicompared to its value in the early 2000s, as presented in the Embraer case study. Such currency depreciations significantly affect business export or import between the United States and Brazil.

Discuss the resulting value of selling goods in the United States exported from Brazil.

For example, a business in the United States that deals with products exported from Brazil must pay $100,000 for goods worth 399,000 BRL.

Identify how weekly changes in the exchange rate would affect profitability for exports from Brazil to the United States.

Weekly changes in the exchange rates will affect the costs of a business dealing with exports from B—such a business benefits from the depreciation of the Brazilian Real. For example, say the value of the Brazilian Real was to depreciate to 4.50 BRL to each $1. The company will pay less for the importation of Brazilian products. For the earlier goods worth 399,000 BRL, the company will now only pay $88,600. This represents a saving of about $11,400 for similar goods before the currency depreciation. The appreciation of the value of the Brazilian Real has the opposite impact on the company. This company will pay more for similar goods if the BRL is starkest.

From a management perspective, identify risks related to changing the s in exchange rates.

One of the roles of management is planning. Managers must be well prepared for the various factors affecting the business’s revenue and costs. However, it is hard to plan for currency exchange rate changes because it is difficult to know with certainty the changes in the market that might affect the exchange rates in the future (Jiang et al., 2013). For example, when the exchange rate of the currency from where a U.S. company is buying its products appreciates, the costs of the business can significantly increase. If this change is too high, the business could experience significant losses. A business that is selling in dollars, such as in the case study, may also experience losses if the value of their currency increases in comparison to the dollar,

Similar Post: Protecting Vulnerable Industries

References

Broll, U., Wahl, J. E., & Wessel, C. (2011). Export, Exchange Rate Risk, And Hedging: The Duopoly Case. German Economic Review, 12(4), 490-502.

Hill, C., & Hult, T., (2019). Global Business Today Asia-Pacific Perspective. McGraw-Hill Education.

Jiang, C., Ma, Y., & An, Y. (2013). International Portfolio Selection With Exchange Rate Risk: A Behavioural Portfolio Theory Perspective. Journal of Banking & Finance, 37(2), 648-659.

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Question 

[u06a2] Unit 6 Assignment 2

Currency Exchange Risks

Read the “Embraer and the Gyrations of the Brazilian Real” case study on page 275 of your textbook. Based on your readings for this unit, identify a strategy Embraer might consider to reduce its currency exchange risk associated with the Brazilian and U.S. currencies. Include the following in your paper:

Currency Exchange Risks

Currency Exchange Risks

  • Identify the exchange rate of the Brazilian real and the U.S. dollar.
  • Discuss the resulting value of selling goods in the United States exported from Brazil.
  • Identify how weekly changes in the exchange rate would affect profitability for exports from Brazil to the United States.
  • From a management perspective, identify risks related to changes the s in the exchange rates.

Use the following guidelines when writing your essay:

  • Length: 250–500 words.
  • Support your position with one additional resource, the globalEDGE or the Capella Library.
  • Your submission should be well-organized and written in clear, succinct language. Follow APA rules for attributing sources that support your analysis and conclusions.

As a reminder related to using APA rules to ensure academic honesty:

  1. When using direct using exact or nearly exact wording), you must enclose the quoted wording in quotation marks, immediately followed by an in-text citation. The source must then be listed on your references page.
  2. When paraphrasing (using your own words to describe a nonoriginal idea), the paraphrased idea must be immediately followed by an in-text cit, action and the source must be listed on your references page.

Resources

Currency Exchange Risks Scoring Guide(Looking for DISTINGUISHED – set up your paper to hit each Topic)

Due Date: End of Unit 6
Percentage of Course Grade: 2%.

CRITERIA NON-PERFORMANCE BASIC PROFICIENT DISTINGUISHED
Discuss the exchange-rate-based value of selling gates exported from a different co in the United Statesuntry.
33%		 It does not discuss the exchange-rate-based value of selling goods in the United States exported from a different country. Discusses the value of the U.S. dollar against the currency of a different counDiscuss uses the exchange-rate-based value of selling gates exported from a different co in the United Statesuntry. Determines the value of the U.S. dollar against the currency of a different country and demonstrates the value using the U.S. selling price of goods exported from a different country.
Discuss how changes in the exchange rate would affect profitability for exports from a different country to the United States.
33%		 It does not discuss how changes in the exchange rate would affect profitability for exports from a different country to the United States. Discusses the exchange rate in the context of exports from a different country to the United States. Discusses how changes in the exchange rate would affect profitability for exports from a different country to the United States. Identifies how weekly changes in the exchange rate would affect profitability for exports from a different country to the United States using specific examples.
From a management perspective, identify risks related to changing the s in the exchange rates.
34%		 It does not identify risks related to changes the s in the exchange rates from a management perspective. Discusses risks related to changes in exchange rates. Identifies risks related to changing the s in the exchange rates from a management perspective. From a management perspective, it identifies and describes risks related to changes the s in the exchange rates.