Hi, need to submit a 500 words essay on the topic Financial risks.
Transaction exposure is linked with the future gain or loss which the company will be making related to future obligation settlements. To handle transitional risk, company goes for different hedging techniques, but hedging if more profitable in the short terms as compared to long term (Shim, Shim & Siegel, 2008, pp 365).
Economic exposure is the most sensitive exposure because its effect is far broader as compared to the others. The extent to which economic exposure will affect a company depends on nature of the company or the industry in which company is. These economic factors can be macro economic factors which have their impact world wide or can be micro economic factors like socio-economic factors or political factors specifically to a particular country (Shim, Shim & Siegel, 2008, pp 365).
The main motto of any organization is to reduce cost of production and to increase profit for the stakeholders. As through marketing, the management tries to increase revenue, so such strategies are being made through which BMW can increase their sale in those countries where currency is appreciating or is over valued and they will restructure their marketing plan for the countries where currency is depreciating or are undervalued. Same strategy is adopted while launching new product into market. BMW introduces its new products when currencies are appreciating so that they can collect revenue as high as possible. Thus the process is more or less like a long term call option. BMW remain highly cautious for finalizing their marketing expenditure. Company always keeps in mind that marginal expenditure made on any unit should be less than the marginal profit per unit.
Strategy for production is just the reverse of marketing strategy as the company always tries to lower down production cost as far as possible. BMW expands its production capacity