Earnings: The Sting of the Strong Dollar

volatility, uncertainty are some of the terminology we hear frequently when taking RMI courses
volatility of market and volatility of currency are giving much of U.S firms headaches.

However, it is not only the U.S companies that are suffering from change in U.S dollars.

During December, I have visited my country. ( Japan)
Major automobile companies in Japan has announced decline in the profit line and the annual sales estimate was off due to the change in value of Yen vs. Dollar.

Toyota has not seen losses for a while on their operation and sales.
However, due to the economic condition last year they have reported a loss in the firm.

One of the reason that brought them a loss was the annual estimate.
They have done the estimate of sales and expense in assumptions of X yen = Y dollars.

We can imagine what would the consequences would be if there are significnat change in either side of this simple currency formula.

Toyota has announced that move even in 1 Yen compared to dollar can cause them a loss of 1million dollars.

Hedging was one of the techniques we have discussed in class.
Such as Delta or American Airlines hedging against oil prices,
American Barrick hedging against gold prices.

In today's market condition, hedging with currency forwards can create a very big value to each of the firms operating in numerous regions.