裢尉纤将贺大生 国际财务管理 微型案例 2.Dow Chemical's strategy (of pricing all of its European products in German marks)was announced shortly after the exchange rate mechanism(ERM)was adjusted to allow much wider bands around the exchange rates between European currencies.Explain why the ERM adjustment may have caused Dow Chemical to implement the strategy. 3.Why might Dow Chemical's cash flows be adversely affected by its strategy of pricing European products in marks? 7.How U.S.Firms Are Reducing Their Economic Exposure to Exchange Rate Risk In recent years,the widening of bands around exchange rates between European currencies has caused some U.S.firms to seek long-term solutions.European currencies are more volatile not only with respect to each other but also with respect to the dollar.Hedging upcoming payables or receivables does not really solve the problem because cash flows in the long run will still be affected by the general trend of exchange rates.FMC Corp.(based in Chicago),a U.S.producer of food-packaging machines,shifts its production among its foreign production facilities because the production expenses tend to shift in response to exchange rate movements.For example,when the Italian lira is weak,it may place more production responsibilities with the Italian facility to produce the machines.The price of these machines may be invoiced in some other European currency or in dollars.Yet,when the expenses are in lira,the dollar cost incurred from producing the machines in lira is relatively low when the lira is weak.Peerless Manufacturing Co.(based in Dallas),a producer of filters, has implemented a strategy for subcontracting some of its production in Europe,in which its choice of a subcontractor is influenced by exchange rates.Its system is flexible so that it can select the subcontractor whose expenses(from a U.S.perspective)are relatively low because of a weak currency in that subcontractor's country. 1.Explain why the establishment of several production sites across European countries by FMC Corp.can reduce exposure to exchange rate fluctuations. 2.Peerless Manufacturing Co.has subcontractors in France and in Germany.Explain how peerless can manage its exposure to exchange rates better by having subcontractors in two different countries. 3.What is a possible disadvantage of having a flexible system in which a firm relies on several different facilities or subcontractors for its production? 8.How U.S.Firms Are Reducing Their Transaction Exposure to Exchange Rate Risk The high degree of volatility in foreign exchange rates has prompted most U.S.-based MNCs to consider various strategies to avoid or at least reduce exchange rate risk.For example, Wedco Technology of New Jersey is exposed when exporting its plastics products to Europe. Wedco decided to price its exports in dollars.Circon Corp.(of California)is exposed when it exports its medical products to Europe.Circon decided to price most of its exports in dollars. When it does accept payment in a foreign currency,it now requires payment almost immediately after the products are exposed.Telematics International,Inc.(of Florida),is exposed when it exports its computer network systems to the United Kingdom(denominated in British pounds)and other countries.Telematics decided to use hedging techniques such as forward contracts to hedge its exposure. -5-国际财务管理 微型案例 - 5 - 2. Dow Chemical’s strategy (of pricing all of its European products in German marks) was announced shortly after the exchange rate mechanism (ERM) was adjusted to allow much wider bands around the exchange rates between European currencies. Explain why the ERM adjustment may have caused Dow Chemical to implement the strategy. 3. Why might Dow Chemical’s cash flows be adversely affected by its strategy of pricing European products in marks? 7. How U.S. Firms Are Reducing Their Economic Exposure to Exchange Rate Risk In recent years, the widening of bands around exchange rates between European currencies has caused some U.S. firms to seek long-term solutions. European currencies are more volatile not only with respect to each other but also with respect to the dollar. Hedging upcoming payables or receivables does not really solve the problem because cash flows in the long run will still be affected by the general trend of exchange rates. FMC Corp.(based in Chicago), a U.S. producer of food-packaging machines, shifts its production among its foreign production facilities because the production expenses tend to shift in response to exchange rate movements. For example, when the Italian lira is weak, it may place more production responsibilities with the Italian facility to produce the machines. The price of these machines may be invoiced in some other European currency or in dollars. Yet, when the expenses are in lira, the dollar cost incurred from producing the machines in lira is relatively low when the lira is weak. Peerless Manufacturing Co. (based in Dallas), a producer of filters, has implemented a strategy for subcontracting some of its production in Europe, in which its choice of a subcontractor is influenced by exchange rates. Its system is flexible so that it can select the subcontractor whose expenses(from a U.S. perspective) are relatively low because of a weak currency in that subcontractor’s country. 1. Explain why the establishment of several production sites across European countries by FMC Corp. can reduce exposure to exchange rate fluctuations. 2. Peerless Manufacturing Co. has subcontractors in France and in Germany. Explain how peerless can manage its exposure to exchange rates better by having subcontractors in two different countries. 3. What is a possible disadvantage of having a flexible system in which a firm relies on several different facilities or subcontractors for its production? 8. How U.S. Firms Are Reducing Their Transaction Exposure to Exchange Rate Risk The high degree of volatility in foreign exchange rates has prompted most U.S.-based MNCs to consider various strategies to avoid or at least reduce exchange rate risk. For example, Wedco Technology of New Jersey is exposed when exporting its plastics products to Europe. Wedco decided to price its exports in dollars. Circon Corp. (of California) is exposed when it exports its medical products to Europe. Circon decided to price most of its exports in dollars. When it does accept payment in a foreign currency, it now requires payment almost immediately after the products are exposed. Telematics International, Inc. (of Florida), is exposed when it exports its computer network systems to the United Kingdom (denominated in British pounds) and other countries. Telematics decided to use hedging techniques such as forward contracts to hedge its exposure