Case Work

...

Coca-Cola keeps a foreign currency cash flow hedging program to reduce the risk that eventually U.S. dollar net cash inflows from sales outside the United States and U.S. dollar net cash outflows from procurement activities will be adversely affected by changes in foreign currency exchange rates.

8. Consider all the regions\countries in which your company has operations. Which country/region seems to be the biggest concern in terms of currency volatility and country risk for your company? Search for recent articles that provide evidence for your company’s activities regarding currency risk issues. Summarize your findings in relation to the overall currency risk for your company.

GE is one of America's most recognizable and respected companies. GE operates virtually in every part of the world and serves customers in approximately 175 countries. In 2014, approximately 50% of the company’s revenue was attributed to activities outside the United States. During 2014, the company generated almost $150 billion in gross sales. As of General Electric's ability to grow revenues will be largely dictated by economic expansion around the world. One of the biggest concern is the volatility in exchange rates that is why GE 1st option is to build up its own supply base in countries where they invest to avoid any fluctuation of the local currency in the operations. General Electric's ability to grow revenues will be largely dictated by economic expansion around the world.

Microsoft, a cloud-based computing company, has big competitors that are rapidly developing and deploying cloud-based services for consumers and business customers. Pricing and delivery models are evolving. Security vulnerabilities in Microsoft products and services could lead to reduced revenues or to liability claims. Maintaining the security of computers and computer networks is a critical issue for Microsoft and the customers. Sales and marketing expenses decreased $1.0 billion or 6%, driven by a reduction in phone expenses and a favorable foreign currency impact of approximately 2%. Revenue decreased $8.3 billion or 9%, primarily due to the impact of the net revenue deferral from Windows 10 of $6.6 billion and an unfavorable foreign currency impact of approximately $3.8 billion or 4%. Microsoft operating expenses increased $2.0 billion or 11%, due to a decrease in impairment, integration, and restructuring expenses and sales and marketing expenses, offset in part by lower gross margin. Gross margin decreased $8.0 billion or 13%, driven by the decline in revenue as discussed above, and included an unfavorable foreign currency impact of approximately $3.3 billion or 5%.

Coca-Cola notified that foreign-exchange headwinds likely would worsen in 2017 and beyond as the strengthening dollar continues to weigh on U.S. multinationals amid overseas volatility. This forecast came as a result of restructuring changes and foreign currencies dragged down the profit and revenue in the past year, cutting program logged progress.

Coca-Cola is sensitive to foreign exchanges because it generates the share of its operating profit abroad, this company is every country except Cuba and North Korea. The company’s third-quarter sale volumes grew 5% in China. Volumes in Europe rose 4%, helped by favorable weather. But volumes fell 4% in Brazil and dropped 2% in Japan. U.S. volumes rose 1%, lifted by increased distribution of Monster Beverage Corp.’s energy drinks after Coke acquired a 16.7% stake in the fast-growing company for $2.15 billion in June 2016.

Areas where McDonald’s has experienced currency volatility and country risks are Asia Pacific, the Middle East and Africa, where McDonald’s said sales fell 1.7 percent a year ago.

9. Consider again your specific group/country: what is the general assessment of your country’s risk? Has this risk increased or decreased over the past year? What factors caused this change? Each member of the group needs to access a different resource here and provide an independent/objective view. See some references below. Briefly discuss your findings.

The general assessment of Russia’s risk is how Russia invested their money. Russian has struggled in investing their money in different places and has not had the results they have wanted. From political issues causing the economy of Russia to suffer, the risk that Russia has tends to grow slowly. These risk that Russia has really have not tried to be fixed because it never really been the main focus of the politicians in Russia. Russia has corruption and it lacks of governance over the investors that are handling the investment. There are some Russia companies that are still good to invest in but Russia tends to be a very risky market to invest in from the past events that have taken place. Despite the progress that Russia has achieved, it was ranked 168th (from 215 countries) on the World Bank’s governance indicator, the corruption perceptions index is a current weakness. Russia has been a country with very unpredictable political and economic outlook and business environment, with a lot of deficiencies that have impact on the investors sector. Corporate default probability is high. Business environment is very risky and unreliable; reports have declared that corporate financial information sometimes is unavailable. Over the past years the actual government in Russia has been stable and with people acceptance and less tension would help the country’s economic expectation in 2016 and further years. Nonetheless, Russia has few weaknesses such lack of corporate and governance transparency, lack of foreign investments, poor private banking sector and infrastructure, persistence unsecure business climate in the country. On the other hand, Russia has abundant natural resources such oil, minerals and metals, professional and skilled workforce, and assertion of regional and energy power.

An application of developed methodology for minimization company’s losses from changes in exchange rates allows companies to extract following benefits: Reduce costs; Increase revenues; Reduce risks of international trade and as a result increase the trading volume.

10. Conclusions and Recommendations: In this section, you should compare the approaches towards foreign exchange risk management of the companies in your group and highlight the similarities and differences. You should also summarize the overall findings of your analysis and provide any recommendations that you might have for your companies and others that consider doing business in your group/country. You should also provide appropriate support for your statements by clearly referencing your resources. Let me know if you have any questions.

Experts have counseled U.S. companies to