Honduras Economic - Foreign Exchange Risk Management

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higher revenue due to a weak dollar in the years before. To this day Walmart still does not perform any type of hedging.

Siemens: Siemens implemented and coordinated a set of risk management and control systems, which support us in the early recognition of developments jeopardizing the continuity of their business. The most important of these systems include their enterprise-wide processes for strategic planning and management reporting. Risk management at Siemens is based on a comprehensive, interactive and management-oriented Enterprise Risk Management (ERM) approach that is integrated into the organization and that addresses both risks and opportunities. Their general response strategies with respect to risks are avoidance, transfer, reduction or acceptance of the relevant risk. Responsibility for a risk or opportunity also involves the development, initiation and monitoring of appropriate response measures corresponding to the chosen response strategy. Yes, the company is hedging.

Nestle: Nestle uses forward foreign exchange contracts, options, financial futures and currency swaps to hedge foreign currency flows and positions. Unrealized foreign exchange contrasts on hedging instruments are paired and accounted for with those on underlying asset or liability. Long-term loans, in foreign currencies, used to finance investments in participations are usually not hedged.

Coca-Cola: According to Item 7A: Quantitative and Qualitative Disclosures about Market Risk in the most recent 10-k report of 2014,The company use derivative financial instruments to further reduce their net exposure to foreign currency fluctuations. The Company enters into forward exchange contracts and purchases currency options (principally euros and Japanese yen) and collars to hedge certain portions of forecasted cash flows denominated in foreign currencies. Additionally, they enter into forward exchange contracts to offset the earnings impact related to foreign currency fluctuations on certain monetary assets and liabilities. Coca-Cola also enter into forward exchange contracts as hedges of net investments in international operations.

d) What type of currency exposure is your company hedging?

Siemens: is exposed to market price risks: Fluctuations in exchange rates, especially between the U.S. dollar and the euro, because a high percentage of their business volume is conducted in the U.S. and as exports from Europe. In addition, they are exposed to currency effects involving the currencies of emerging markets, in particular the Chinese Yuan. A strengthening of the euro (particularly against the U.S. dollar) may change their competitive position, as many of their competitors may benefit from having a substantial portion of their costs based in weaker currencies, enabling them to offer their products at lower prices. As a result, a strong euro in relation to the U.S. dollar and other currencies could have an adverse impact on our revenues and results of operations.

Coca-Cola: Coca-Cola is being exposed to Translation exposure.Translation exposures arise as many of our operations have functional currencies other than euro, and any change in the functional currency against the euro impacts our consolidated income statement and balance sheet when results are translated into euro.

e) What hedging techniques are they using?

Siemens: Certain currency risks as well as interest rate risks are hedged using derivative financial instruments. Depending on the development of foreign currency exchange and interest rates, Siemen hedging activities could have significant effects on their business, financial condition and results of operations. Changes in the fair value of warrants issued together with US$3 billion bonds in fiscal 2012 depends mainly on the underlying Siemens and OSRAM share prices as well as their respective volatilities, irrespective of the fact that our potential obligation related to the warrant writer position to physically deliver Siemens and OSRAM shares could be covered out of existing stock. Accordingly, exchange rate, interest rate and share price fluctuations may lead to higher volatility and adverse effects on our business, financial condition and results of operations.

Nestle: Fair value hedging, cash flow hedging, and net investment hedging.

Coca-Cola: According to the company’s website, due to the Group’s operating activities, the company is exposed to a significant amount of foreign currency risk. Their treasury policy requires the hedging of rolling 12-month forecasted transactional exposures within defined minimum (25%) and maximum (80%) coverage levels. Hedging beyond a 12-month period may occur, subject to certain maximum coverage levels, provided the forecasted transactions are highly probable. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations. These contracts normally mature within one year. Also, according to the most recent company’s 10-k report of 2014, the Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates, commodity prices or interest rates

2) Consider 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.

Walmart: Walmart faces trouble in China and Mexico. In 2013, Walmart’s international revenue grew by just 1% and its revenue per square feet decline by about 4%. Walmart has had trouble with their Chinese stores since they don’t completely understand the Chinese buying culture. Apparently they are not driven by low prices but instead more of the quality they are getting. They care more about quality over price. Although China is not a major part of Walmart’s current international revenue they see it as a long term investment so they’ve taken their time in adjusting towards the Chinese culture. Sales in Mexico have declined due to an unwavering economy in 2013. Mexico is the location of Walmart’s largest international revenue so for them having low sales is a huge problem for them. In 2013, Mexico had an increase in taxes which prevented consumers from spending freely which of course hurt Walmart in the process. Mexico’s growth rate used to be 4.0 in 2010 until it declined to 1.4 in 2013. The

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