Multilateral businesses and currency fluctuations
Multilateral businesses frequently have to account for the impact of currency fluctuations. Without careful planning, management may wind up missing out on export revenues. The discussion that follows examines how currency fluctuations have affected Toyota Company.
The impact of currency fluctuations on Toyota Company
One US dollar is currently worth 113.81 Japanese Yen, according to XE.com (as of 8th November 2017). As a result, in order to reflect value in US dollars, the following changes will be needed if Toyota intends to sell a batch of Toyota cars to their agents in the US. The estimate makes use of a contract with a $1 billion price tag.
Converting Japanese Yen to US dollars
1 Japanese Yen to 1 USD = 0.0088
1000,000,000 Japanese Yens = 8,800,000 USD
That is, the value of the contract will be valued at $8,800,000 (USD) in the United States.
Impact of exchange rate changes
Apparently, weekly changes in exchange rates affect the value of contracts. If the Japanese Yen falls in value, it becomes cheaper to acquire them using the US dollar, which benefits Toyota Company in its capacity as an exporter. That is, Americans find it cheaper purchasing Toyota cars as one USD can be converted into more Japanese yen than before. Conversely, if the value of the US dollar falls, it becomes more difficult for Americans to acquire the Japanese yen currency, which lessens the ability of Toyota to sell in the international markets. However, the effect of these adjustments will affect imports differently.
Risks and management strategy
The alterations mentioned above pose a significant risk to any company. From a management perspective, there is a translation risk posed as cross-border transactions and are integrated into a company's financial statements, which might affect its stock prices (Shamsuddin, 2009). Also, according to Papaioannou (2006), an economic risk can occur should the rates change adversely such that the prices of a country's product become too expensive in the international markets. For instance, if the value of Japanese Yen rises, possibly out of increased domestic interest rates, fewer Americans will find it comfortable buying Toyota products. Therefore, a management that seeks to handle the challenges mentioned above should adopt a comprehensive plan to counter or hedge against possible market changes to avoid undesirable impacts and ensure uninterrupted business in the international markets.
References
Papaioannou, M (2006). Exchange Rate Risk Management and Management: Issues and
Approaches for Firms. IMF Working Paper: WP/06/255. Retrieved from
https://www.imf.org/external/pubs/ft/wp/2006/wp06255.pdf
Shamsuddin, A. F. M. (2009, March). Interest Rate and Foreign Exchange Risk Exposures of
Australian Banks: A Note. International Journal of Banking and Finance, 6(2). Retrieved
from http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1061&context=ijbf
XE. Com. (2017, November 8). XE Currency Converter. USD to JPY. Retrieved from
http://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=JPY
