{br} STUCK with your assignment? {br} When is it due? {br} Get FREE assistance. Page Title: {title}{br} Page URL: {url}
UK: +44 748 007-0908, USA: +1 917 810-5386 [email protected]

Case Study: SalesCo 1

You are a member of the management team of SalesCo, a technology company
selling a variety of different machines to various countries. Their headquarters is
based in the UK but they have two sales subsidiaries: one in Norway and one in
France. SalesCo have a lot of customers in the USA and Australia but they do not
have a subsidiary there – they ship the machines out to these customers from the
UK. Australian and American customers are given price lists denominated in their
own currency (AUD and $).

A US customer orders a laser machine from SalesCo; on their price list, the US
customer has seen that this laser machine costs $480,000 and they have the option
of taking 6 months credit. For SalesCo, the cost of producing and shipping the laser
machine is £300,000. At the time of the sale, the XR was £1: $1.50.

You hope that the customer will pay the $480,000 in dollars immediately. You want
to convert this $-amount into sterling. Based on the XR at the time of sale, how much
profit (in sterling!) do you expect to make on this one machine?

Expected receipt: $480,000/1.5 = £320,000
Costs: £300,000
Expected profit: £320,000 – £300,000 = £20,000

After you have done this calculation, the customer phones you to tell you that they
will use the full 6 months credit period and will pay the $480,000 in 6 months’ time.

In six months’ time, the customer actually pays the $480,000 and you want to again
convert it to sterling. The XR now is £1:$1.65. What does your profit look like?

Expected receipt: $480,000/1.65 = £290,909
Costs: £300,000
Expected profit: £290,909 – £300,000 = -£9,091 LOSS, NOT PROFIT!

Alternatively, the XR in 6 months’ time is £1:$1.40. Again, what does your profit look

Expected receipt: $480,000/1.40 = £342,857
Costs: £300,000
Expected profit: £342,857 – £300,000 = £42,857 MORE PROFIT!

What is this form of XR exposure called? And why is that its name?

Transaction exposure; because the company is exposed to XR movements as soon
as there is a transaction of money across borders

What could be potential strategic issues with this kind of exposure?

Any transaction of money from one currency to the next carries the risk of being
affected by XR movements.
This refers also to transactions that are bound to happen, but that have not
happened yet – the exposure is there already but clearly the actual profit/loss does
not happen until the transaction is actually carried out, e.g. when price lists are
denominated in foreign currencies; when prices are agreed in foreign currency; when
companies decide to merge, acquire or build JVs and decide upon the value of the
shares to be exchanged/bought/created.

Case Study: SalesCo 2

At the end of the year, SalesCo has to create consolidated accounts for all their
operations, including the subsidiaries in Norway and France. This is a summary of
their accounts:

French subsidiary Norwegian subsidiary

Profit and Loss Account
Profits for Year 378,000 480,000

Balance Sheet
Assets 2,457,000 3,840,000
Bank loans -491,400 -960,000
Net assets 1,965,600 2,880,000

The exchange rate at the end of the year can be:
Either: £1:€1.50 and £1:NOK1.50
Or: £1:€1.40 and £1:NOK1.60
Translate the profits of both subsidiaries into sterling, for both possible exchange

French subsidiary Norwegian
£ £
Profits at £1:€1.50 252,000 Profits at £1:NOK1.50 320,000
Profits at £1:€1.40 270,000 Profits at £1:NOK1.60 300,000
Difference between
the two

Difference between
the two


What does this mean for SalesCo? For its shareholders? Should decisions be made
based on such translated XRs?

Variations across years can be based purely on XR movement, not performance of
the subsidiary – should any decisions relating to e.g. closure of subsidiaries be
based on this? Probably not, but shareholders may only look at the figures and
become dissatisfied based on what they see in the books. They may request actions
to address “seemingly” under-performing operations.
It is important to consider that this is NOT a cash loss/gain but purely a matter of
translating figures on a specific day.

What is this form of XR exposure called? And why is that its name?

Translation exposure; because the company is exposed to XR movements as soon
as it translates any form of financial information from one currency to another.
This does NOT include an actual transfer of money and there is NO ACTUAL cash
loss. This is purely ON PAPER.

A translation analysis can also be carried out with the value of the company’s assets
– you will see that the translated sterling value of the assets depends upon the XR
used. What could this mean for companies?

ANY asset has different values, depending on the XR used to translate the value. A
company itself (or any major project) also has a value – thus, consideration of values
(e.g. when companies decide upon the valuation of shares for M&A or the creation of
a JV entity) is affected by translation exposure.
Shareholder may reject certain projects because the value on paper may not look
sufficiently large to create shareholder wealth.

Case Study: SalesCo 3

SalesCo produces its products in the UK and exports them to Australia. The
production costs occur in £, but the pricing of the products occurs in AUD. SalesCo
competes against Australian companies that also have price lists in AUD but at the
same time their production costs occur in AUD as well.

SalesCo sell an x-ray machine to a Australian customer, which is priced at AUD
510,000. Currently, the XR is AUD 1 : £0.64. The x-ray machine costs £310,000 to
produce and ship. Two scenarios:

Based on the current XR, what would be SalesCo’s receipt and profit in sterling?

Receipt: AUD 510,000*0.64 = £326,400
Profit: £326,400- £310,000 = £16,400

Imagine the following two scenarios:

1) Sterling depreciates to: AUD 1 : £0.75

In sterling, how much does SalesCo receive and what would its profit be?

Receipt: AUD 510,000*0.75 = £382,500
Profit: £382,500 – £310,000 = £72,500 MORE PROFIT THAN WITH

2) Sterling appreciates to: AUD 1 = £0.55

In sterling, how much does SalesCo receive and what would its profit be?

Receipt: AUD 510,000*0.55 = £280,500
Profit: £280,500 – £310,000 = -£30,000 LOSS

What are the strategic issues relating to the above scenarios?

XR movements can cause competitive dis-/advantage for companies.
e.g. in scenario 2, SalesCo ultimately makes a loss on the technology sold. Possibly
probe students to find out: what could SalesCo do to address this competitive
disadvantage? They can react in the following ways:
? Do nothing ? reduction in £-proceeds; possibly reduced demand from
Australian customers especially if the Australian competitors can reduce their
own prices to gain more market share
? Increase prices ? maintain profit margin, but lose market share ? loss of
? Use some form of hedging or internal mechanisms for dealing with XRs, e.g.
pricing in £ ? can have negative effects on the customers who want to pay
in their own home currency

e.g. in scenario 1, SalesCo can reduce its price in Australia and subsequently gain
additional market share there

What is this form of XR exposure called? And why is that its name?

Economic exposure or competitive exposure; because the company’s exposure to
XR movements affects the trading/competitive position of the company in relation to
other companies. This is not about issues relating to transaction or translation of
figures, but it is about the positioning of the company in the market, which clearly can
be affected (positively and negatively) by the movements in XRs.

Application of XR exposures/risks to cross-border collaborations

Consider your knowledge of the effects of XR exposures and consider how these
might impact upon cross-border deals like M&As or JVs, both during their
exploration/negotiation phase and after the deal has been implemented. Consider
positive and negative impacts and think about the tree types of XR exposure.


Sample Answer

Compelling correspondence is essential to the achievement all things considered but since of the changing idea of the present working environments, successful correspondence turns out to be more troublesome, and because of the numerous impediments that will permit beneficiaries to acknowledge the plan of the sender It is restricted. Misguided judgments.In spite of the fact that correspondence inside the association is rarely completely open, numerous straightforward arrangements can be executed to advance the effect of these hindrances.

Concerning specific contextual analysis, two significant correspondence standards, correspondence channel determination and commotion are self-evident. This course presents the standards of correspondence, the act of general correspondence, and different speculations to all the more likely comprehend the correspondence exchanges experienced in regular daily existence. The standards and practices that you learn in this course give the premise to additionally learning and correspondence.

This course starts with an outline of the correspondence cycle, the method of reasoning and hypothesis. In resulting modules of the course, we will look at explicit use of relational connections in close to home and expert life. These incorporate relational correspondence, bunch correspondence and dynamic, authoritative correspondence in the work environment or relational correspondence. Rule of Business Communication In request to make correspondence viable, it is important to follow a few rules and standards. Seven of them are fundamental and applicable, and these are clear, finished, brief, obliging, right, thought to be, concrete. These standards are frequently called 7C for business correspondence. The subtleties of these correspondence standards are examined underneath: Politeness Principle: When conveying, we should build up a cordial relationship with every individual who sends data to us.

To be inviting and polite is indistinguishable, and politeness requires an insightful and amicable activity against others. Axioms are notable that gracious “pay of graciousness is the main thing to win everything”. Correspondence staff ought to consistently remember this. The accompanying standards may assist with improving courtesy:Preliminary considering correspondence with family All glad families have the mystery of progress. This achievement originates from a strong establishment of closeness and closeness. Indeed, through private correspondence these cozy family connections become all the more intently. Correspondence is the foundation of different affiliations, building solid partners of obedient devotion, improving family way of life, and assisting with accomplishing satisfaction (Gosche, p. 1). In any case, so as to keep up an amicable relationship, a few families experienced tumultuous encounters. Correspondence in the family is an intricate and alluring marvel. Correspondence between families isn’t restricted to single messages between families or verbal correspondence.

It is a unique cycle that oversees force, closeness and limits, cohesiveness and flexibility of route frameworks, and makes pictures, topics, stories, ceremonies, rules, jobs, making implications, making a feeling of family life An intelligent cycle that makes a model. This model has passed ages. Notwithstanding the view as a family and family automatic framework, one of the greatest exploration establishments in between family correspondence centers around a family correspondence model. Family correspondence model (FCP) hypothesis clarifies why families impart in their own specific manner dependent on one another ‘s psychological direction. Early FCP research established in media research is keen on how families handle broad communications data. Family correspondence was perceived as an exceptional scholastic exploration field by the National Communications Association in 1989. Family correspondence researchers were at first impacted by family research, social brain science, and relational hypothesis, before long built up the hypothesis and began research in a family framework zeroed in on a significant job. Until 2001, the primary issue of the Family Communication Research Journal, Family Communication Magazine, was given. Family correspondence is more than the field of correspondence analysts in the family. Examination on family correspondence is normally done by individuals in brain science, humanism, and family research, to give some examples models. However, as the popular family correspondence researcher Leslie Baxter stated, it is the focal point of this intelligent semantic creation measure making the grant of family correspondence special. In the field of in-home correspondence, correspondence is normally not founded on autonomous messages from one sender to one beneficiary, yet dependent on the dynamic interdependency of data shared among families It is conceptualized. The focal point of this methodology is on the shared trait of semantic development inside family frameworks. As such, producing doesn’t happen in vacuum, however it happens in a wide scope of ages and social exchange.

Standards are rules end up being followed when performing work to agree to a given objective. Hierarchical achievement relies significantly upon compelling correspondence. So as to successfully impart, it is important to follow a few standards and rules. Coming up next are rules to guarantee powerful correspondence: clearness: lucidity of data is a significant guideline of correspondence. For beneficiaries to know the message plainly, the messages ought to be sorted out in a basic language. To guarantee that beneficiaries can without much of a stretch comprehend the importance of the message, the sender needs to impart unmistakably and unhesitatingly so the beneficiary can plainly and unquestionably comprehend the data.>

Our customer support team is here to answer your questions. Ask us anything!