Reference no: EM131287503
Exchange rate movements can have a major impact on the competitive position of businesses. Please read Management Focus: Airbus and the Euro in CH 10 in your textbook (page 372 in the 7th edition).
French aircraft maker Airbus prices its planes in dollars. However, because over half the company's costs are in euros, the company has the potential to see significant fluctuations in its earnings if it does not hedge its foreign exchange exposure.
1. What type of foreign exchange exposure does Airbus face? How can Airbus protect itself from its exposure to changing exchange rates? How does the company's switch to more U.S. suppliers help the company?
2. Airbus has asked its European based suppliers to start pricing in U.S. Dollars. What does Airbus hope to gain by this request? What does it mean for suppliers?
After reading the case in your textbook, please also take a look at the recent developments in the company:
The following article shows the impact of strong US Dollar on US businesses that have world wide operations. "American multinational companies find themselves in a different boat, say experts from Wharton and elsewhere. For one thing, their overseas earnings are worth a lot less when they translate unhedged profits into U.S. dollars."
(https://knowledge.wharton.upenn.edu/article/what-a-robust-dollar-means-for-u-s-business-and-the-global-economy/ (Links to an external site.))
Airbus, a Europe based company, opened its first plant in September 2015 in Alabama, US. "..by producing in the United States, Airbus will reduce risks tied to the shifting US-euro exchange rate." (https://www.channelnewsasia.com/news/business/taking-aim-at-boeing/2126702.html (Links to an external site.))
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