group 1b curreny fluctuations

8/14/2019 Group 1B Curreny Fluctuations

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IMPACT OF CURRENCY FLUCTUATIONSON THE SUPPLY CHAIN

By:

Group1- Division B

Chetan Shetty

Nikhil Wadhwani

Rijun Chokshi

Shalini Sukhari

Suneel Jadon


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CURRENCY FLUCTUATION IN THENEWS..

Currency Fluctuations' are top concern for UK SMEs tradinginternationally

Microsoft Arcade Price Hike due to Currency Fluctuations

India Outsourcing: Pay Is Down, Competition Is Up

For China, moving away from the dollar makes sense


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EXCHANGE RISK IN A SUPPLY CHAIN

- A DETAILED ANALYSIS


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Factory based in England

Buys cocoa from Switzerland

Pays in CHF

Customer based in Australia

Pays in AUD

An Example...


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RISKS IN THE SUPPLY CHAIN


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RISKS IN THE SUPPLYCHAIN


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EXCHANGE RISK IN A SUPPLY CHAIN

- A DETAILED ANALYSIS


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IMPACT ON THE SUPPLY CHAIN


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SUPPLY SIDE RISKS

INPUT COSTS The price of raw materials etc sourced from foreign

destinations may increase due to exchange rate fluctuations

SHIPPING COSTS Cost of shipping is usually in US Dollars which is the

preferred currency for trade worldwide

SUPPLIER RISK

Suppliers may run the risk of closure due to a squeeze on

their operating margins due to the exchange rate risk.

(Similar to Indian IT companies outsourcing their services

to clients in the US)


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OPERATIONAL RISKS

LABOR Hike in Labor charges of people employed in foreigndestinations

OPERATING MARGINS Operating margins increase or decrease depending on

the strength of the currency in the country ofoperation

INTERNAL RISKS Funds earmarked for important initiatives like R&D

may be adversely affected due to currencyfluctuations


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DEMAND SIDE RISKS

PRICING Fluctuations in the exchange rate may forcecompanies to hike their product price which in turnaffects their competitiveness in the marketplace

ENTRY INTO NEW MARKETS Companies may look to set up shop in emerging

markets with greater spending power due to favorablecurrency fluctuations

CUSTOMER RISK Companies may risk losing customers due to pricing

pressures brought about by currency fluctuations


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EXCHANGE RISKMANAGEMENT STRATEGIES


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EXCHANGE RISKMANAGEMENT STRATEGIES


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FINANCIAL HEDGINGTECHNIQUES

Modus Operandi Trading in Derivatives

Negotiating payments in the local currency

Shortcomings Protects only against short term exchange rate

fluctuations

Higher Premiums are charged based on the degree of

risk involved in the process For futures trading, both the downside and upside are

limited


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OPERATIONAL HEDGINGTECHNIQUES

Modus Operandi By Jumping behind the tariff wall

Eg: Toyotas manufacturing plants in the US

Optimizing supply chain by having multiple product

sourcing options

Product innovation & customization of product

specifications according to customer needs in

emerging markets

Focus on increasing productivity in off-shore &

outsourcing destinations

Decreasing the period of exchange risk exposure by

reducing the lead time in a supply chain


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THANK YOU


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REFERENCES

Deloitte Research Managing in the Face ofExchange-Rate Uncertainty

Addressing currency volatility - Short-term

solutions to immediate issues manufacturersface, Deloitte & Touche

group 1b curreny fluctuations

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