Adidas Case Study
1. How can a global company operating in many different countries effectively manage exchange rates? What happened with Adidas in 2014?
Companies operating globally, must deal with supply chain partners who trade in different currency units faces the volatility of currency exchange rate fluctuations forcing many to implement policies to mitigate their financial losses.
It would be idealistic to expect when operating on a global scale, that devaluation of currencies would correlate with falling prices. It can be quite the opposite as we have seen with trades, that devaluation of the dollar means that imports get more expensive and the exports of goods become more competitive. Similarly, a devalued foreign currency can lower profit margins for a U.S. company operating in the Euro zone.
Globalization has impacted where companies will source their products as such many companies have operations in other currencies and need to implement strategies to deal with currency volatility.
Some measures that can be taken are:
a. In advance of entering into agreements if a company strongly believes that their exposure to volatility is high, then it would enter into a forward contract. A forward contract means that agreements are made beforehand to buy and sell a specific currency at an agreed rate, basically …show more content…
However, since the U.S currency had strengthened, the smart thing to do is to peg all the other currencies to the US dollar, set up new short -term contracts in US dollars to protect them from further exposure to be guaranteed payment at the same amount. The reason I proposed short-term is because there is a possibility that the Euro may regain its strength in the long term and they will find themselves in a similar position, and then later when the Euro regain strength they can negotiate contracts in Euro, the home
Companies operating globally, must deal with supply chain partners who trade in different currency units faces the volatility of currency exchange rate fluctuations forcing many to implement policies to mitigate their financial losses.
It would be idealistic to expect when operating on a global scale, that devaluation of currencies would correlate with falling prices. It can be quite the opposite as we have seen with trades, that devaluation of the dollar means that imports get more expensive and the exports of goods become more competitive. Similarly, a devalued foreign currency can lower profit margins for a U.S. company operating in the Euro zone.
Globalization has impacted where companies will source their products as such many companies have operations in other currencies and need to implement strategies to deal with currency volatility.
Some measures that can be taken are:
a. In advance of entering into agreements if a company strongly believes that their exposure to volatility is high, then it would enter into a forward contract. A forward contract means that agreements are made beforehand to buy and sell a specific currency at an agreed rate, basically …show more content…
However, since the U.S currency had strengthened, the smart thing to do is to peg all the other currencies to the US dollar, set up new short -term contracts in US dollars to protect them from further exposure to be guaranteed payment at the same amount. The reason I proposed short-term is because there is a possibility that the Euro may regain its strength in the long term and they will find themselves in a similar position, and then later when the Euro regain strength they can negotiate contracts in Euro, the home