Finance in Expert Motor Essay Example Pdf - Free Essay Example

Sample details Pages: 8 Words: 2322 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? 1. What is the magnitude of the foreign exchange exposure for each of the currencies in exhibit 1? EXHIBIT 1: COUNTRY GROSS BUY ($) GROSS SALES($) NET EXPOSURE GERMANY 5,845 2,400 3,445 U.K. 440 2,245 -1805 BULGARIA 1,390 1,340 50 CZECH REPUBLIC 380 920 -540 HUNGARY 705 560 145 TURKEY 180 530 -350 CYPRUS 485 465 20 POLAND 0 255 -255 U.S. 255 140 115 CANADA 55 750 -695 JAPAN 455 0 455 AUSTRALIA 195 0 195 OTHERS 0 785 -785 TOTAL $10,385 $10,390 -5 2. Does the exposure to the Euro help or hinder to the competitive performance of Expert Motor? To some extent the increased importance for companies in addressing the problems of foreign currency exchange rates is as a result of the internationalization of modern business (Copeland, 2005). This process is resulting in the growth of world trade relative to national economies and is also reflective of a trend towards economic integration in Europe in particular (Butler, 2000). Therefore as a multinational automobile company the management of exposure is a critical strategic decision in the company gaining a competitive advantage over its major competitors in different European countries. The exposure to the Euro can be discussed from both positive and negative perspectives which respectively affect the competitive performance of EM trades and international operations. Firstly the Euro is a relatively strong currency recently thus the competitiveness of domestic producers in Euro countries is not as robust when compared to the position of manufacturers that are based in weak currency countries. This is due to the high costs faced by those manufacturers which as a result are able to provide EM as a non-domestic company resulting price advantages. Secondly corresponding to the strong performance of the Euro Expert Motors has tended towards diversifying its production locations in order to benefit from lower wage levels and weaker currency countries and balance its exposure to Euro accordingly. Nevertheless since 1979 the member countries of the EU have operated national policies coordinating currency relationships towards closer monetary integration thus minimizing the ability to benefit from varied currency cost levels within Europe (Christou, 1992). So EM can benefit from its treasure function being located in Budapest in certain ways. From this point of view it is interesting to note that when the Euro depreciated against the US dollar but appreciated ag ainst the mark it is hard to say that exposure to the Euro only had negative influences. In contrast exposure including transaction exposure and translation exposure obviously may hinder the competitive performance of EM or create losses for the company. For example the diversified locations of producers can not only reduce economies of scale, which is particularly vital for a motor maker, but also raise the cost of goods transactions. Additionally in terms of investment the exposure to Euro might reduce the profit margins ultimately on investment return due to appreciation of the Euro which might occur in the future. 3. How would the parent company in Florida view the situation if the gross buys and gross sales in Germany were reversed? EMà ¢Ã¢â€š ¬Ã¢â€ž ¢s main business is conducted in Germany thus there will be a significant influence on the strategic decision process made in the parent company in Florida due to a change in the gross buys and gross sales evidenced thus far by EM. It is obvious in exhibit one that the purchasing of product elements occurs mainly in Germany and also at the same time that the major revenues of the company also originates from Germany. Therefore if the gross buys and gross sales were reversed there will be a decisive effect on EMà ¢Ã¢â€š ¬Ã¢â€ž ¢s profit levels as a result of currency exposure (Pike Neale, 2003). Additionally the German Mark is relatively strong and the strategic exposure management decisions made in the parent company will see it is a good point for the companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s investment in terms of return. Although the cost of material and labour is comparatively higher in Germany profit return levels are attractive. Furthermore competitive market share might be achieved by the reversed gross sales in terms of competing with EMà ¢Ã¢â€š ¬Ã¢â€ž ¢s main competitors Volkswagen/Audi and Opel/ Vauxhall. Through its diversified suppliers in weaker currency countries the value of investment in Germany mi ght drive the parent company to decide to use revenues in Germany to balance its exposure elsewhere. 4. The data in the case address the currency flows for Expert Motors in Europe that tracked by the regional treasury centre in Budapest. However, another issue involves the stock of assets that the firm has in Europe. Speculate on what you think might be happening to the value of Expert Motorsà ¢Ã¢â€š ¬Ã¢â€ž ¢ investment in Europe in the light of various currency appreciations and depreciations, especially the Euro. When hard currencies such as the Euro are likely to appreciate the value of assets will increase while the value of liabilities within EMà ¢Ã¢â€š ¬Ã¢â€ž ¢s investments will decrease. In contrast if soft currencies depreciate the value of will assets tend to decrease but the value of liabilities will increase (Dixit Pindyck, 1995). In relation to the occurrence of devaluation EM should tighten its credit terms in order to decrease accounts receivable and reduce le vels of cash flow. This is to say the value of investment might be higher than the expected level as well as display an unexpected loss. There is a significant effect on currency flows in terms of which when the home currency appreciates EM should avoid receiving payment from suppliers but instead adopt a policy of using forward contracts to reduce exposure risks. At the same time there might also be relatively small changes in exchange rates in other European countries which can provide EM with opportunities to balance its cash flow. In addition in this case the company received a range of tax benefits from nationally pursued governmental policies in Hungary. By setting up a regional coordination centre there Expert Motors not only benefits from the absence of registration tax but also enables banks to finance investment projects through the centre at a much lower level than that available in other European countries. This provides EM with a competitive advantage in terms of invest ment in Hungary which allows the company to respond to depreciation and appreciation events more effectively in balancing its investments across Europe holistically. 5. What techniques and financial instruments might the TRC employ to control its currency exposure? Explain these techniques in the light of Czech Republic currency situation? The concept of hedging is essential in managing currency exposure risk including both translation and transaction exposure. Hedging currency exposure means establishing an offsetting currency position so whatever is lost or gained on the original currency exposure is exactly balanced by a corresponding foreign exchange gain or loss on the currency hedge, (Shapiro, 2003). In terms of transaction exposure the company might employ protection measures which include the usage of forward contracts, price adjustment, currency options, and borrowing or lending in the foreign currency. Likewise the TRC could try to invoice all transactions in dollars . However this can not avoid currency exposure risks entirely because of the future costs and revenues involved in such transactions. In the case of Czech Republic currency situation where the Czech Republic Koruny is comparatively weak EM has a competitive advantage over their major competitors due to the political contexts in which the TRC is embedded. In a forward market hedge EM can transform the currency by selling or buying forward dependent on if the company is long or short CRK. In doing this, no matter what happens to the exchange rate of CRK EM still can collect its sale revenue upon which the dollar value is fixed. Alternatively EM could avoid its transaction exposure altogether if the supplier allowed it to price the sale in dollars which shifts risks from EM to the buyers. This is because firms attempt to invoice exports in strong currencies and imports in weak currencies, (Shapiro, 2003). Additionally the call option is one which might be quite appropriate to EMà ¢Ã¢â €š ¬Ã¢â€ž ¢s situation in the Czech Republic. It is a valuable risk management tool because by buying a call option on the foreign currency the firm is able to purchase at a maximum dollar price together with forward contracts in order to hedge the exposure to foreign currency. 6. What financial benefits if any, does Expert Motors have for locating its treasury function in Budapest, Hungary? What benefits, if any, accrue to Hungary? The treasury function helps EM to centralize its treasury decisions and act in a coordinated fashion in treasury matters. Additionally Hungary has provided an excellent environment for EM in terms of varied forms of tax benefits and exemptions from foreign exchange regulations. In general then translation exposure is treated as a à ¢Ã¢â€š ¬Ã‹Å"groupà ¢Ã¢â€š ¬Ã¢â€ž ¢ matter, (Heywood, 1984). In that the hedging decisions are made at head office with a focus on protecting future streams of earnings. Yet the protection of current earnings may be bet ter handled it can be argued at local level by an increase in the response times to currency rate fluctuations. Through location of its treasury function in Budapest EM is able to take advantage of locating on the European continent which is the main area in which it does business. First of all the advantage comes from the obvious benefits from tax breaks as well as investment opportunities. In this way when currencies in other European countries depreciate the risks can be shifted through the potential gains at treasury functional level. This is the simplest way for EM to deal with small amounts in the same way which is able to propose new commercial contracts in a foreign currency over a certain size. Secondly the benefit can be seen from having the treasury function in Budapest by increasing the ability of the centre to gross up exposures in one currency from several of the operating companies. Nevertheless the parent company in Florida is able to offer forward cover at market ra tes to the treasury function in Hungary thus it can retain its own decisions reflected in their local accounts. However the cost of hiring professionals working in local treasury function might cause extra expense but from a long term view this can be viewed as an investment opportunity in retaining skilled staff at local rates. From Hungaryà ¢Ã¢â€š ¬Ã¢â€ž ¢s point of view there are certain benefits of attracting foreign investment such as EM to set up treasure functions within the country. As Copeland (2005) points out the labour market is a critical factor in determining how smoothly adjustment proceeds. Therefore at the pre-existing money wages when foreign prices increase the domestic production has to become more competitive because real wages are now lower than before. It is useful to improve the performance of local companies when competing against foreign companies. Conversely the value of investment in terms of direct investment or indirect investment means increasing o pportunities for jobs in the home country. This is valuable for Hungaryà ¢Ã¢â€š ¬Ã¢â€ž ¢s labour market and decreases the rate of unemployment because of tax concessions for expatriate employees which drives EM towards preferring to employ more local workers in order to achieve the tax benefits offered by government policies. This is based on the reason of mobility of labour in that those who can not find jobs in the domestic economy will move abroad. As a result the domestic economy loses skilled and qualified labour. Thus it is believed that labour mobility prevents the need for exchange rate flexibility, (Eiteman, Stonehill Moffett, 1993). 7. What parties, if any might be harmed by the existence of regional treasury function like Expert Motors? In consideration of the macroeconomic environment the regional treasury function as a tool for companies like Expert Motor to administrate their foreign currency exposure have significant influences on the conditions within weaker currency countries. Firstly labour market conditions in those countries might be hurt because the comparatively cheap and convenient exploitation based on currency speculations from multinational companies like EM. In the short term it can be argued that it is good for local governments to improve their unemployment rates through foreign companies locating there yet in the longer run exploitation might cause a key segmentation of secondary markets much larger than the primary segmentation in the labour market. In other words the skill level of the employees is low which has a vital influence on the competitive capability of the domestic companies to compete in an international context. Torrington, Hall and Taylor (2005) argue that the numbers of people and skills available in a labour market as well as the complexity of employment regulation are significant elements in human resource decision making processes in a country. Secondly the treasury function in multinational trading c ompanies like EM might also have an influence on local monetary policies that might have adverse effect on central bank policies. In practice the types of monetary policy depend to a large extent on the character and political complexion of the central bank more than anything else (Lane, 2001). Therefore the relationship between US and European countries can have significant impacts on the operating process in regional treasury centres. Pressure from political authorities might de-emphasise role of central banks to some extent in order to maintain a more stable currency situation to attract long term foreign investment in particular in a global economic context. References Butler, K.C. (2000) Multinational Finance 2nd eidition, South-Western College Publishing, Cincinnati, OH Copeland, L. (2005) Exchange Rates and International Finance fourth edition, FT Prentice Hall, UK. Christou, C. (1992) National Monetary Policies and the European Monetary Union, Greek Economic Revi ew, August. Dixit, A. Pindyck, R. (1995) The Options Approach to Capital Investment, Harvard Business Review, May-June Eiteman, D.K., Stonehill, A.I. Moffett, M.H. (1993) Multinational Business Finance sixth edition, Addison-Wesley Publishing Company, US. Heywood, J. (1984) Foreign Exchange and the Corporate Treasurer fourth edition, Adam Charles Black Publishers Ltd, London. Lane, P.(2001) The New Open Economy Macroeconomics: a Survey, Journal of International Economics, 54 (2) Pike, R. Neale, B. (2003) Corporate Finance and Investment: Decisions and Strategies 4TH edition, Prentice Hall, UK. Shapiro, A. (2003) Multinational Financial Management 7th edition, John-Wiley, London. Torrington, D., Hall, L. Taylor, S. (2005) Human Resource Management 6th edition, FT Prentice Hall, Pearson Education Limited, UK. Don’t waste time! Our writers will create an original "Finance in Expert Motor Essay Example Pdf" essay for you Create order

The Legalization of Drugs and The Consequences on Society ...

The use of drugs by members of society is a problem for some individuals and a larger problem for the legal system. The use of drugs has created crime among the dealers of illegal substances in many forms, the classification of that substance determines the level of the crime, and with different charges the legal system acts accordingly. In the case of drugs and the legal systems, action against the use or distribution of those substances, many people have been incarcerated in the United States where the tax payers have to support the criminals that are housed for a period of time. In the United States over half a million individuals have been incarcerated for drug crimes and that number is growing annually. Society cannot continuously†¦show more content†¦The consequences of legalizing drugs could be vast and it is proven that drugs destroy lives. Society cannot not be expected to be able to control what will happen if drugs were legalized because the effects and addictive power of drugs are uncontrollable by the majority. Among the reason why drugs are illegal one should stand out, Illegal drugs are illegal because they are harmful, and that should be reason enough to make society understand the consequences of drug use. The problem is that there is a growing misconception that illegal drugs can be taken safely, such as marijuana, but the truth is that not enough scientific research has been done to support the theory that marijuana is safe. Arguments for marijuana being a safe drug and should be legalized have ranged from many different areas but the most popular one is that it is used by doctors. The argument that marijuana is used in medicine has been brought forth in almost every argument for the drug but there is a problem with this argument that most supporters do not take the time to uncover. 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Another Look Back, and a Look Ahead Free Essays

Imagine the impact technological innovations have had on society? How much did technology influence society a decade ago, and how much does it influence society now? Technology was created from humans to become a more efficient specie. Although technology has advanced society with respect to technology and efficiency, it has also created problems not previously seen because of the use of technology. Edward Tenner, a writer and technology consultant, wrote an article titled â€Å"Another Look Back, and a Look Ahead† published in 1996. We will write a custom essay sample on Another Look Back, and a Look Ahead or any similar topic only for you Order Now In his article Tenner argues, through the use of the rhetorical appeal ethos, compare and contrast, and cause and effect, that society is advancing at an alarming rate and suggests a â€Å"retreating from intensity† (Tenner 78) in order to allow society to slow its progression and accustom itself to new technology. Tenner uses his credibility as an exceptional writer to appeal to audiences and inform them about the subject in his article. Throughout the article, Tenner uses an extensive vocabulary and shows fluency in his writing. In the sentence, â€Å"The prognosis for revenge effects is hopeful†¦by replacing brute force with finesse† (Tenner 60), Tenner shows his expertise by using collegial writing skills and even introduces a term he created, â€Å"revenge effects†. He is well informed about what he is talking about and never leaves the reader guessing what he is trying to say. The fact that he was formerly employed as the science editor at the Princeton University Press makes him an even more credible source. When Tenner talks about â€Å"the defeat of the Spanish Armada in 1588† (Tenner 63), it demonstrates to the reader he is educated and increases ethos. By the end of the article, Tenner has effectively made his case for society to slow its technological progression. Aside from using ethos in his article, Tenner uses compare and contrast to show his audience how technology has changed over time. Tenner provides many examples to show how they compare and contrast from now and the past. He talks about the sinking of the Titanic becoming a signal event, â€Å"one that reveals an ominous and previously underestimated kind of danger† (Tenner 64). At the time the Titanic was the biggest technological innovation to start the twentieth century. Ship engineers have become more aware of the dangers the ocean presents ships. Although in comparison ships might be of the same size and provide the same transportation over waters, its comparison shows they have evolved. â€Å"The higher potential speed of steamships requires more rather than less care. The larger number of passengers and crew required more careful drills and inspection of equipment† (Tenner 65). The speed of ships has significantly changed over time as well as the technology of ship engines which allow for them to reach significant speeds. Through these advances one could argue it has created an efficiency of allowing people to travel much faster, however Tenner reminds them of the â€Å"revenge effects† these innovations create. Today much more safety regulations are used than in the past, this is due to the new dangers technology creates. Another example Tenner uses is the comparison and contrast of transportation over time. Humans created the automobile to become more efficient and make travel and transportation much faster throughout the world. â€Å"Nearly every passenger journey or freight shipment began and ended with a horse-drawn vehicle or a horse† (Tenner 67). Due to technological innovations and Henry Ford’s assembly line, motor vehicles were created not only to suit the rich but for all society to enjoy. Through this progression people were not limited to where they could travel and the time it took to get there. People could take regular jobs that were far from home rather than having to move to accommodate their needs. Roads and freeways soon followed with the increase of automobile use. â€Å"The greatest surprise of motoring was the speed at which traffic clogged the roads, including freeways and other limited-access highways built to relieve congestion† (Tenner 70). Tenner compares the use of transportation over time, demonstrating that although it has made transportation much faster, it has created â€Å"revenge effects† such as traffic and congestion, things that before the technological innovation were never seen. Examples such as these have led Tenner to advise society to fix problems that new technologies bring not by creating new technologies to solve the problem, but by slowing down and addressing the problem itself, not a quick fix. Comparing and contrasting the impact technology has had on society effectively illustrate Tenner’s main argument, but through the use of cause and effect the audience can relate and understand how Tenner formed his thesis. In the text Tenner provides many cause and effect examples. An example Tenner uses is the effects that are created because of industrial carbon dioxide emissions. Industries that create carbon dioxide allow for many benefits such as electricity and transportation, but they are also responsible for warming the earth’s temperatures, â€Å"global warming†. â€Å"The increasing cultivation of the earth would bring about higher temperatures and eventually a melting of the polar icecap† (Tenner 76). Another cause/effect example Tenner uses is â€Å"strict directives on meat radiation after the Chernobyl meltdown of 1986 destroyed the Lapp reindeer-meat economy† (Tenner 76). A catastrophic event in Chernobyl created a lasting effect on the economy. Tenner argues that these technologies have many lasting effects, known as â€Å"revenge effects†. From beginning to end, Tenner’s article urges the reader to draw back from such a rapid progression of technology. Tenner argues, through the use of the rhetorical appeal ethos, compare and contrast, and cause and effect, technological innovation instead of creating efficiency create â€Å"revenge effects† which create more problems for society. Tenner suggests that society recoil its progression of technology, not forever, but until accustomed to the use of new technologies. Tenner’s argument in the article opens many readers eyes as to the real problems they choose to ignore due to technological innovation. This issue is relevant and provides a subject that all people can identify with. Technologies are all around society and the impact it has is colossal. Whatever your side of the argument for technologies and society may be, the reality Tenner presents reveal a need to retreat from intensive technological progression. How to cite Another Look Back, and a Look Ahead, Papers

The Cold War Dbq free essay sample

The Cold War was a â€Å"global; power struggle between the United States and the Soviet Union that lasted from 1945 to 1991† (textbook page 511). In 1945 the United States and the Soviet Union defeated Germany in World War Two. After the war was over, both wanted to be the leader of the world. The two countries remained allies with each other until communism began to spread in Europe. The spread of communism caused Americans to fear communism which lead to problems that affected the United States domestic policy and their society. The Cold War affected the US educationally, To begin, the Cold war caused Domestic policies to have a negative educational impact on The American people. The American people were deprived of their rights. According to the 26th article of the Universal Declaration of Human Rights (UDHR), everyone has the right to an education. In Document 6, the launching of the Soviet Satellite Sputnik destroyed the US’s general education. We will write a custom essay sample on The Cold War Dbq or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The Soviet’s Satellite Sputnik was the first satellite to be released into the atmosphere. When the US found out about the Sputnik, the Cold War turned into the Space Race. The Space Race was a race between the US and the USSR to develop technology to allow â€Å"firsts† in exploration of space. The Sputnik forced the US to place a new national priority On research science. It can be interpreted that math and reading was no longer a focus. This was A negative effect on the American people because they were no longer receiving a proper education for math and reading. Next, the Cold War affected the US socially.