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Foreign Exchange Rate Fluctuation on Pricing Decision
In: Business and Management
Submitted By icolyn
What implication do fluctuations in foreign exchange rates have on the pricing decisions of export marketing managers?
Globalization is no longer an abstraction but a stark reality that virtually all firms, large and a small, face. Firms that want to survive in the 21st century must confront all encompassing force that pervades every aspect of business. However, exchange rate fluctuation is an issue that affects the decisions marketing managers make about pricing.
Management faces different decision situations, depending on whether currencies in key markets have strengthened or weakened relative to the home country currency. If the home country currency is weakened this would be an opportunity as exchange would be in a favourable position. A producer in a weak-currency country can choose to cut export prices to increase market share or maintain its prices and reap healthier profit margins. When revenues are translated into home country, the returns would be substantial. On the other hand it is a different situation when a company's home currency strengthens, management would see this as unfavorable for exportation as overseas revenues would be reduced when translated to home country currency.
Management in making there decision must consider currency fluctuation even though the degree of exposure varies among companies. In an example, Honda is heavily dependent on the North American market, which accounts for more than half of its operating income. In trying to reduce currency fluctuation about three quarters of the cars Honda, sells in America are produced in the United States. In late 2000 the dollar had fallen to 108 Yen compared to 113 Yen the previous year, the unfavorable shift had a direct negative impact on corporate profits.
In responding to currency fluctuations global marketers could utilize other elements of the marketing mix besides price. If…...
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...BRAC University Journal, vol. V, no. 2, 2008, pp. 81-91 FOREIGN EXCHANGE RISK MANAGEMENT PRACTICES - A STUDY IN INDIAN SCENARIO Sathya Swaroop Debasish Department of Business Management Fakir Mohan University Vyasa Vihar, Balasore - 756019 Orissa, INDIA ABSTRACT Indian economy in the post-liberalisation era has witnessed increasing awareness of the need for introduction of various risk management products to enable hedging against market risk in a cost effective way. This industry-wide, cross-sectional study concentrates on recent foreign exchange risk management practices and derivatives product usage by large non-banking Indian-based firms. The study is exploratory in nature and aims at an understanding the risk appetite and FERM (Foreign Exchange Risk Management) practices of Indian corporate enterprises. This study focusses on the activity of end-users of financial derivatives and is confined to 501 non-banking corporate enterprises. A combination of simple random and judgement sampling was used for selecting the corporate enterprises and the major statistical tools used were Correlation and Factor analysis. The study finds wide usage of derivative products for risk management and the prime reason of hedging is reduction in volatility of cash flows. VAR (Value-at-Risk) technique was found to be the preferred method of risk evaluation by maximum number of Indian corporate. Further, in terms of the external techniques for risk hedging, the......
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Pricing and Exchange Rates
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