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Managing currency risks is important because the changes in the exchange rates are likely to affect the business profits, assets value, cash flows, and the competitive positions in the foreign markets. Increase or decrease in the exchange rates is likely to influence decision-making process by the overseas suppliers, customers, and organizations.
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Hedging the currency is an excellent method of managing the risk of fluctuating currency. According to Madura (2014), currency hedging is the act of entering into financial contracts to protect the business from the expected, unexpected, and the anticipated changes in the foreign exchange rates. Therefore, the owner of the enterprise can utilize the currency-hedging criterion to reduce or eliminate the adverse effects of the decreasing value of the Euro. The business manager can accomplish the currency hedging by purchasing different types of the contracts made for the specific goals. The goals, in this case, will be the protection of the personal finances against future depreciation of the Euro. The commercial contractors can consider the level of the risk the business entrepreneur is likely to encounter in the course of conducting the international business.
Buying another country currency can be another method of managing the risk of fluctuating Euro. The entrepreneur can purchase and store the company gains in another currency other than the Euro. For instance, saving the profits in dollar can allow the owner to keep his proceeds in another bank with high-interest rates. The deposits will earn a given amount of interests annually allowing the business owner to have a soft landing in case the Euro depreciates. The owner can use the interests to maintain his family and keep the business running until the Euro starts to appreciate again. Although the method may also be risky, it would be worth undertaking especially with foreign currencies that maintain exchange rates over an extended period.
The decrease in the value of the Indonesian and South Africa currencies will make the exports cheaper. The exporting firms will benefit from the depreciation of the coin. In order to take advantage of the situation, the company needs to execute marketing and location of facilities adjustment to reap fully from the situation. The firm should start offering discounts on the exports to the two countries. The discount will aim to lure more consumers of the product into buying more. The advance will be a plus to the business because the firm will sell more.
Bundle pricing, special pricing and promoting marketing strategies will enhance the sale of the consumer products. Developing close contacts with the consumer will increase the level of the trust to the consumer. The criterion will translate into more sales. Therefore, the marketing strategies will aim at increasing the sale of the exports thereby increasing revenues of the exporting firm. In addition, the company may purpose to open up new business warehouses in the two countries to enhance consumer access to the enterprise premises.
Incorporating the traditional marketing strategies can be a significant to increasing the sales of the exports. Use of the billboards, banners, and advertisements can increase the sales of the exports (Dibb, 2012). The use of the traditional strategies allows the company to gather more information on the target market. The procedure enables the marketers to identify the culture, size, the products and the consumer lives to produce goods that meet the specification of each group. Therefore, the firm can design the exports to meet the criterion of each of the group. The specification will lead to more export sales, hence, more revenue from the exports. Online marketing strategies can assist in increasing the level of marketing. Allowing online shopping can permit the consumers to make purchases at their convenience. The new marketing strategy will lead to more exports, hence, more export revenues.
Appreciation of the Chinese RMB will have adverse effects on the business of the exports. The satisfaction will increase the values of the exports. Therefore, the exports will be expensive. Consequently, the higher exports value will lower the demand for the export products. As a result, the company will sell less of the products, hence, lower returns. While there may be the urge to chop the prices to enhance the sales of the exports, the firm should disregard pressures to doing so. Instead, the company should continue marketing the products in the foreign markets. The organization should venture into new markets to attract new consumers. Venturing into new market segments can create demand for the products thereby increasing the sales. The firm should not consider relocation of the business because advance may lead to additional costs. An increase in the operational costs to an intolerable capacity may result in the closure of the enterprise due to lack of revenue to sustain the store operations in the foreign markets.
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According to Otero-Iglesias (2012), the value of the currency is likely to increase. The increase in foreign investments implies that the exports from the country are cheap as compared to the country’s imports. Therefore, investors will benefit more from their exports to the country. As a result, the exports are likely to attract more foreign income. Foreign investments, therefore, will tend to increase the value of the local currency. Due to the rise in the foreign investments, the rate of employment in this country is likely to increase because human power will be a necessity. Because of the growth in the employment rate, there will be more production of goods and services.
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