There are a couple of tips that can be used to reduce the risk associated with foreign exchange fluctuations.
According to the market conditions and outlook section of Deere & Company\’s Q1 2020 financial statement, Deer\’s sales on Construction & Forestry and Agriculture & Turf had an unfavorable currency translation of about 1 percent each. Additionally, Deere\’s informs investors of possible factors that could impact the international currency exchange in the Safe Harbor Statement. Deere states, \”The economic conditions and outlook could be further adversely affected by (i) uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries, (ii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iii) the risk that the euro as the single currency of the Eurozone could cease to exist\” (Deere, p.5).There are a couple of tips that can be used to reduce the risk associated with foreign exchange fluctuations. The first is to \”quote prices and require payment in U.S. dollars\” (International Trade Administration, (n.d.). Para. 3). This in turn puts the liability on the international party and the risk of a currency fluctuation will reflect changes to the U.S. dollar, not the home country\’s currency. The second option is to \”hold cash balances in one currency rather than another or to take advantage of the high interest rates available in a particular country for short-term investments in marketable securities\” (Block et al., 2019, p.200). If a company\’s currency is changing, converting this to another currency will reduce the losses caused by exchange fluctuations.
References:
John Deere. (n.d.). Investor relations (Links to an external site.) (Links to an external site.) (Links to an external site.). Retrieved from https://investor.deere.com
Block, S. B., Hirt, G. A., & Danielson, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com/International Trade Administration. (n.d.). Foreign Exchange Risk Mitigate the risk of fluctuating foreign currency rates. Retrieved from https://www.trade.gov/foreign-exchange-risk
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