Having reviewed the exposures and responses of each
company, individually, we see that they all have some level of variability on
how they approach exchange rate risk. Both AAPL and HPQ has consistently used
forward contracts, interest rate swaps, and option contracts to offset foreign
currency risks. Lenovo on the other hand just uses forward foreign exchange
contracts to hedge its currency exchange risk. The recommendation we have for
Lenovo is to diversify its hedging portfolio, including introducing ‘Options’
derivative instrument to manage the company’s risk exposure should also be
looked into.

We also need to keep in mind the causes of such
currency fluctuations. We see that majorly global economic events and
uncertainty causes currencies to fluctuate and that dominos to a currency
volatility contributing to variations in sales numbers of products and services
in impacted geographies. For example, in the event that one or more European
countries were to replace the euro with another currency, sales of companies
doing business in Europe would likely be adversely affected until stable
exchange rates are established. Few examples of current events which would
impact currency risk for organizations doing business worldwide are:

a) President Donald Trump’s tax reform opens prospect
of a stronger US Dollar heading into the end of 2017, this may adversely affect
foreign currency-denominated sales for AAPL, HPQ and Lenovo.

b) Continuous weakening of Chinese Yuan by Chinese
government, may negatively impact Lenovo Group’s revenue forecast, since close
to 30% of its revenue comes China1, and
lastly,

We will write a custom essay sample on
Having opens prospect of a stronger US Dollar
Specifically for you for only $16.38 $13.9/page


order now

c)
Political unrest in Europe: Brexit – The UK prime minister’s decision to
trigger the Article 50 exit clause of the EU treaty gives the UK and the EU
until the end of March 2019 to reach an agreement.

Catalonia
crisis – could damage future business forecasts for AAPL, HPQ and Lenovo.
European market consists of nearly 20~25% of their revenue

1
Chinese Yuan
Looks More Like Floating Currency,
www.bloomberg.com/news/articles/2017-11-16/yuan-looks-more-like-floating-currency-nowadays-fed-study-shows

x

Hi!
I'm Dora!

Would you like to get a custom essay? How about receiving a customized one?

Click here