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Economic/OperatingExposureOutline•Lufthansacase•OperatingExposure–Example–Measuringoperatingexposure–Managingoperatingexposure•financialhedges•businessstrategiesLufthansa•Jan.‘85:purchased20Boeing737’sfor$500mln,payableJan.1986.•WhattodowiththeDM/$exchangerisk?–Remainuncovered?–Hedge100%forward?–Hedgesomeforward?–Putoptions?–Moneymarkethedge/prepay?Exhibit1(Lufthansa)Lufthansa’sNetCostbyHedgingAlternativeLufthansa•HerrRutnaufeltthedollarwasovervalued,andwaslikelytodepreciate,reducingDMcostofaircraft.•Buthewasn’tsure.Itcouldappreciate(haddonesofor5years).•Sold50%forward.Exhibit2(Lufthansa)WhatHerrRuhnauCouldSee:TheRiseLufthansa•HerrRutnaufeltthedollarwasovervalued,andwaslikelytodepreciate,reducingDMcostofaircraft.•Buthewasn’tsure.Itcouldappreciate(haddonesofor5years).•Sold50%forward.•Outcome:–Dollardiddepreciate:down28%!!•Rutnauheavilycriticizedforsellingforward.Exhibit3(Lufthansa)WhatHerrRuhnauCouldn’tSee:TheFallExhibit1(Lufthansa)Lufthansa’sNetCostbyHedgingAlternativeAccusationsagainstRuhnau•ChosewrongtimetobuyBoeing.Dollarat1980’shighinJan.85.•Hedging50%whenheexpectedthedollartofall.Shouldhaveleftthewholeexposureunhedged.•Usingforwardsinsteadofoptions.•BuyingBoeingatall.ShouldhaveboughtAirbus.ShouldRuhnaubefired?Operatingexposure(a.k.a.economic,competitiveorstrategicexposure)•Theimpactofunexpectedexchangeratechangesuponknownandunknownbutexpectedfuturecashflowsofthefirm,forindefinitefuture.•Firmvalue=discountedexpectedfuturecashflows•OperatingexposurethereforemeasureshowfirmvaluechangeswithunexpectedchangesinexchangeratesSimpleexample•U.S.firmexpects10mlnSF/yearfromexportstoSwitzerland,indefinitely.•Long-termexchangerateforecast=currentspotexchangerate•Currentrate:2SF/$(.50$/SF)•Requiredrateofreturn:10%/year•WhatiftheSFdepreciates?E[$CF]$5mln$5mln$5mln...V10%Perpetuityformula:V=C/rYear123...SFSF10mlnSF10mlnSF10mln...forecast:.50$/SF.50$/SF.50$/SF...SoV=$5mln/.10=$50mlnE[$CF]$5mln$5mln$5mln...10%WhatifSFdepreciates2%,to.49$/DM?Year123...SFSF10mlnSF10mlnSF10mln...forecast:.50$/SF.50$/SF.50$/SF...$50mlnE[$CF]V10%NewexchangerateimpliesnewX-rateforecastsYear123...SFSF10mlnSF10mlnSF10mln...forecast:.49$/SF.49$/SF.49$/SF...E[$CF]$4.9mln$4.9mln$4.9mln...V10%andnewprojecteddollarcashflowsYear123...SFSF10mlnSF10mlnSF10mln...forecast:.49$/SF.49$/SF.49$/SF...E[$CF]$4.9mln$4.9mln$4.9mln...$49mln10%andreducesthevalueofthefirmby$1mln.Year123...SFSF10mlnSF10mlnSF10mln...forecast:.49$/SF.49$/SF.49$/SF...Year123...SFSF10mlnSF10mlnSF10mln...Operatingexposure:$1mlnchangeinfirmvalueforevery2%changeinthecurrent$/SFrateMeasuringoperatingexposure•Requiresalonger-termperspective:viewingthefirmasanongoingconcernwithpriceandcostcompetitivenessaffectedbyexchangeratechanges•Requiresanoverallassessmentoftheindustry:–Nationalityofcompetitors&suppliers–firm’sdegreeofmarketpowerExample:Volvo•Structure:•ImportssuppliesfromGermany•producesinSweden•SellsinU.S.•Majorcompetition:•Germancars(BMW,Mercedes,Audi)•Mostimportantrisks•Swedishkronavs.DM(notespeciallyvs.$)•Swedishinterestrates•GermanproducerpricesMeasuringoperatingexposure•Typesoffirms:•Price-takingfirms•Price-settingfirmswithmarketpowerPrice-takingfirms1.Analyzeimpactofunexpected,persistentexchangeratechangesuponlocal-currencyforeignmarketprices,forindefinitefuture–Who’sthecompetition?2.Analyzeimpactonhome-currencycashflows3.Decidewhattodoabouttheexchangerate-relatedoperatingexposure.Simpleexample,revisited•U.S.firmexpects10mlnSF/yearfromexportstoSwitzerland,indefinitely.•Assumptions:–CompetingwithSwissfirms.–SFpriceunaffectedby$/SFfluctuations•Consequently,$revenuesheavilyaffectedby$/SFchanges:10%SFdepreciationlowersdiscountedexpectedrevenues10%.•SFappreciationhastheoppositeeffect.Example#2:U.S.chemicalfirmexportingtoCanada•Majorcompetition:otherU.S.firms.•ChemicalindustrysetsC$pricesbasedonU.S.$costs.•IFtheCanadiandollardepreciates10%:–C$pricesriseoverallby10%.–ReductionintotalCanadiansalesby2%.–Localcurrencyresult:C$revenuesup8%.–U.S.$revenuesforthisfirmfall2%.•Operatingexposurenotsevere.Price-settingfirmswith(some)marketpower•Someabilitytoraiselocal-currencypricesinforeignmarketstooffsetFXdepreciation.•Howmuchability?Dependsonthepriceelasticityofdemandforthatfirm’sproducts.Example:1985-87dollardepreciationof50%againstDM11.522.533.5PlazaLouvreDM/DOLLAREXCHANGERATE,1974-97DM/$747678808284868890929496Example:1985-87dollardepreciationof50%againstDM•Mercedes,BMW:–Raise$pricesto(partly)maintainDMrevenues?–Leave$pricesunchangedtomaintainmarketshare/salesvolume?•Policy:–Raised$prices30-40%–IntenseadvertisingcampaigntodifferentiateGermancars.ManagingOperatingExposure•Financialmanagement–contractualhedges•Strategicmanagement–marketinginitiatives–productioninitiativesFinancialManagementofOperatingExposureIfhavestable,predictableFCearnings,variouscontractual/financialhedgesarefeasibleforthemediumterm(1-5years)•long-termforwardcontracts•local-currencydebt(matching)•currencyswaps•long-termputoptionsExamples•Merck(pharmaceuticals)–R&D,productioninU.S.–SalesinU.S.,abroad•Salespredictable(niche-ma
本文标题:EconomicOperatingExposure(外汇风险)
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