Executive Summary: Jaguar PLC, 1984
This case explores the operating exposure of Jaguar PLC in 1984, just as the government is about to relinquish control and take the company public via an IPO. The primary concern of the CFO is that Jaguar sells over 50% of its cars in the US, while its production costs and factories are U.K.-based. This currency mismatch creates operating exposure for the firm that needs to be hedged.
While the current trend in the USD has been higher, the markets are expecting a pullback in the currency. With labor accounting for a significant portion of the cost base for luxury car industry, it is unlikely that the expense will decline in the near future. Again this creates a potential liability in the matching pf the cash inflows and outflows. Given Jaguar’s primary competitors have operating expenses in DEM, the CFO should also be concerned with the competitive advantages that are associated with favorable exchanges rate when compared to the competition. Thus, there also exists the issue of the GBP/DEM exchange rate. The overarching themes and underlying issues that must be addressed in order to address Jaguar’s currency exposure are:
• Valuation of the risks associated with firms with multiple currency exposure
• Risks associated with revenue streams and expenses in different currencies
• Valuation and assessment of highly competitive niche luxury car markets
• Supply chain effectiveness and labor trends in the automotive industry
• Strategic positioning of operations for a multinational firm
After thoroughly weighing the issues from a qualitative and quantitative perspective, we believe that there are several strategies that Jaguar Management can undertake in order to maximize the profitability of and mitigate the exchange rate exposure for the revenue that is generated in the US. In particular, we would recommend:
• Management should locate a proportionate level of its manufacturing facilities in the US to foster a reduction in operating exposure since revenues and costs would be denominated in the same currency.
• Jaguar Treasury should engage in Forward/Swap Contracts to Sell US$ and hedge against currency fluctuations.
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...problems like over hedge or under hedge.
Buy Call Option on GBP - Another alternative for Jaguar to hedge its operating exposure is to use option. By paying certain amounts of option premium, Jaguar could reserve the right but not bear the obligation to exercise the option, therefore, if the exchange rate changes in favor of Jaguar (i.e., USD appreciate), Jaguar could let the option expired worthless; on the other hand, if USD depreciate, Jaguar could exercise the option and gain revenues. However, Option is relatively expensive since it requires an upfront investment.
Money Market Hedge - Jaguar could borrow USD, convert the proceeds into GBP using spot rate, and use the revenues generated in US market to pay back the USD principle and interests in the future. Borrowing in US dollars would provide a "natural" hedge against Jaguar’s dollar revenue stream. However, Jaguar might not get a favorable interest rate in its USD loans, which might inflate the costs of the money market hedge. What’s more, unpredictable fluctuation of Jaguar’s revenue streams in US might hurt its ability to pay back debts and therefore become a potential threat to Jaguar’s financial situation.
In the beginning of the novel Candide is described as extremely optimistic person who always sees the best in everything. Not only is Candide very optimistic, but he does not really understand how the world works. He seems to be simple minded and immature toward any and all of the harsh realities of the real world. His philosophy towards life is that he is living in “the best of all possible worlds”. Candide gets this philosophy from his teacher Pangloss, who is also an extreme optimist. Both Pangloss and Candide are faced with horrible suffering and misfortune, almost in spite of their optimistic outlook on
The desired outcomes from reorientation of the company’s business were to reduce risk of increasing prices, decrease costs and increase sales. These desired outcomes have ap...
Voltaire, Francois-Marie Arouet de. “Candide.” The Norton Anthology of World Literature. Gen. ed. Martin Puchner. Shoter 3rd ed. Vol. 2. New York: Norton, 2013. 100-59. Print.
Candide's misfortune begins when he is kicked out of the castle and experiences a series of horrible events. Candide is unable to see anything positive in his ordeals, contrary to Dr. Pangloss' teachings that there is a cause for all effects and that, though we might not understand it, everything is all for the good. Candide's endless trials begin when he is forced into the army simply because he is the right height, five feet five inches. In the army he is subjected to endless drills and humiliations and is almost beaten to death. Candide escapes and, after being degraded by good Christians for being an anti-Christ, meets a diseased beggar who turns out to be Dr. Pangloss. Dr. Pangloss informs him that Bulgarian soldiers attacked the castle of Westfalia and killed Cunegonde - more misery!
Through the steady adversity faced by Candide, Voltaire brings up important questions about how the nature of optimism appears to commoners. Pangloss's philosophy of "the best of all possible worlds" - an example of the misleading optimistic theory advocated by the philosophers of the Enlightenment which Voltaire deems absurd, - is "listened to attentively and believed innocently" (2) by the young and naive Candide at the beginning of the novel. However, as the novel progresses Candide begins to balks at this optimist idea, in the end suggesting to his comrades to "cultivate our garden" (87). This, his own conclusion, can be interpreted as humble work is the only answer to a life continuously plagued with bad luck. Through the actions of his silly characters, Voltaire preaches that man is unable to understanding the evils in this world and concludes that the basic goal of life is not to seek pure and trivial happiness, rather it is to learn to survive.
The automobile industry began with Henry Ford’s production of the Model T in the early 1900’s. With the creation of the assembly line, cars became cheaper and quicker to produce, thus making them affordable for many people. There were originally 500 auto manufacturers. By 1908, there were only 200; and in 1917 only 23 remained. This vast reduction was due to large amounts of consolidation within the industry.
1. What is the business reason for China Noah’s potential currency exposure? Does the company need to subject itself to substantial exchange rate risk? Is the risk “material” to China Noah? Do you think China Noah should hedge?
In one part of his Columbia dissertation “Voltaire and Leibniz,” Richard A. Brooks has read Candide as an autobiographical account of Voltaire’s lifelong indecision and struggle to come to a solution to the problem of evil: “Candide was not merely an intellectual or philosophical exercise; it is a work, in a sense, autobiographical” (99). The problem of evil was one of the primary concerns of Enlightenment thinkers such as Voltaire. Scholars generally agree that Voltaire, throughout most of his works, was in conversation with pre-enlightenment German philosopher, Gottfried Wilhelm Leibniz. Some of them read Voltaire’s works as a denouncement of Leibniz as a charlatan. Others, when looking specifically at Candide, suggest that Voltaire is not refuting Leibniz’ philosophy, per se, but its popular misrepresentations. Others say that, whether Voltaire was aiming at criticizing Leibniz or the popularization of his thought, he failed in his enterprise. However, a close reading of the text of Candide itself, especially chapters three and six, provides specific evidence for reading this text as a direct and virulent attack on Leibniz’ Optimism, whose main argument is best summarized by the phrase “the best of all possible worlds” (Leibniz 229).
The economic forces affecting the company include inflation and fluctuations in interest and currency exchange rates. Additional challenges include technological advances and Johnson & Johnson’s competition and patents attained by com...
... Conclusion, all of the previously discussed topics were put together by Voltaire in an ingenious way to ridicule the philosophy that everything is exactly as it should be and that everything bad happens for the greater good. All the tragedies Candide underwent were introduced in the novella with the purpose of disproving this notion. The book Candide made me think a lot about everything that is wrong with humankind. Voltaire was very successful and Candide's story accomplished his goal because It is hard to imagine that someone would still believe this philosophy after reading this very ingenious, funny, and entertaining novella.
Often, Dr. Pangloss is involved in these tales. Dr. Pangloss is faced with the infection of syphilis, which does not seem to be of great desire for most people. Remaining optimistic, he says “it was a thing unavoidable, a necessary ingredient in the best of worlds” (Voltaire, 8). The satire is seen very clearly here; Voltaire mocks the idea that contracting a life threatening disease was just in God’s plan and essential to Pangloss’ best life. This is absurd, Voltaire is trying to convey that not everything that happens necessarily happens for a good reason. Candide and Pangloss also experience a shipwreck and an earthquake in Lisbon together, both of which have no benefit to anyone at play. In other words, no greater good is accomplished by the causal effects of natural disasters. Voltaire scrutinizes the absurdity in assuming detrimental events such as these are necessary for the best
Debenhams starts its history in 1778 when William Clark opened a store, selling expensive fabrics, bonnets and parasols. In 1813 renamed to Clark and Debenhams because William Debenhams invest in the business, and in the following years the firm was profitable from the Victoria fashion. In 1851 Clement Freebody invested in the business and renamed to Debenhams and Freebody. A wholesale business was born, selling cloth to dressmakers and other large retails. In 1905 Debenhams Limited was incorporated, and in 1919, the business joined with Marshall and Snellgrove. In 1928 Debenhams became a public company.
Other types of exchange rate risks are translation risk and so-called hidden risk. The translation risk relates to cases where large multinational companies have subsidiaries in other countries. On the financial statement of the whole group, the company may have to translate the assets and liabilities from foreign accounts into the group statement. The translation will involve foreign exchange exposure. The term hidden risk evolves around the fact that all companies are subject to exchange rate risks, even if they don’t do business with companies using other currencies. A company that is buying supplies from a local manufacturer might be affected of fluctuating foreign exchange rates if the local manufacturer is doing business with overseas companies. If a manufacturer goes out of business, or experience heavy losses, it will affect all the companies it does business with. The co...
After the financial crisis of the late 1990s, the demands for risk management tools have increased. The investors have been effectively utilizing such products as KOSPI 200 futures and options, 3-Year KTB futures and USD futures to meet their hedging needs.
Toyota Motor Corporation is one of the largest automakers in the world. At its annual conference in Tokyo on May 8, 2008, the company announced that activities through March 2008 generated a sales figure of $252.7 billion, a new record for the company. However, the company is lowering expectations for the coming year due to a stronger yen, a slowing American economy, and the rising cost of raw materials (Rowley, 2008). If Toyota is to continue increasing its revenue, it must examine its business practice and determine on a course of action to maximize its profit.