Walmart: strategic risks and a financial strategy.
1. Risks of foreign currency exposure and management of each risk.
Foreign exchange risk, are the risk that a company wealth faces as a result of the changes in exchange rates. We have transactional, translational, and economic risks. Transactional risk occurs as a change in the exchange rate that arise between the transaction and subsequent settlement dates. Most of the time this risk is linked to the imports and exchange of a corporation. Unlike transactional risks that are based on the relatively short-term effects of cash flow, economic risk also includes the aspect of change in exchange rates movements in the market and also considers the value of the company (ACCAPEDIA, n.d.). A corporation can face economic risks directly or indirectly. Direct economic risks are experienced when a company’s home currency has appreciated that those of the competitors and for that reason they gains sales at your expense since the home currency strength makes your products expensive both for home customers and those at abroad. Indirect economic risks come when a firm’s home currency does not go vis-a- vis the buyers currency, this leads to the losing of competitive position. For instance, suppose a Turkish firm is trading with an American based firm and its main competitor is a Canadian firm. If the Canadian dollar becomes weaker than the American dollar, the Turkish firm will lose some competitive advantage in the industry. Translation…
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