Page 171 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes (d) Raising Productivity: Raising productivity through closing inefficient plants, automating
heavily and negotiating wage and benefit cutbacks and work rule concessions is another
alternative to manage economic exposure. Employee motivation can also be used to
heighten productivity and improve product quality.

Self Assessment

Fill in the blanks:
7. …………………… strategy should take into account anticipated exchange rate changes.
8. Companies can also respond to exchange rate changes by altering their ……………………
strategy, which deals with such areas as new product introduction.
9. …………………… motivation can also be used to heighten productivity and improve
product quality.
10. A strategy of …………………… shifting presupposes that a company has already created
a portfolio of plants worldwide.

10.3 Corporate Philosophy for Exposure Management

As for exposure management strategies, a lot depends on the corporate philosophy of a company,
in particular, its attitude towards risk. In real life risk and rewards go hand in hand: there is no
low risk, high reward strategy. Apart from a company’s willingness to take risks in pursuit of
rewards, equally important are its financial strengths and therefore, ability to take risks, the
nature of its business and its vulnerability to adverse movements and so on. In short, there can
be no single strategy which is appropriate to all businesses. Four separate strategy options are
feasible.

Figure 10.1: Four Separate Strategy Options

High Risk

All Exposures Left Active
Unhedged Trading

Low Reward High Reward

All Exposures Selective
Hedged Hedging

Low Risk

Low Risk: Low Reward

This option involves automatic hedging of exposures in the forward market as soon as they
arise, irrespective of the attractiveness or otherwise of the forward rate. The merits of this

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