Case Study Of Amway

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Amway (Malaysia) Holdings Berhad, an investment holding company, distributes consumer products principally under the Amway name worldwide. However, the policy of Amway is that no derivatives shall be undertaken except for the use as hedging instruments where appropriate and cost-efficient.
Amway is exposed to financial risks arising from their operations and the use of financial instruments. The main of financial risks include interest rate risk, foreign currency risk, and commodity price risk. The following are the main of financial risks:
Interest Rate Risk
The interest rate risk is the risk that a value of investment will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the
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The rationale is that as interest rates increase, the opportunity cost of holding a bond decreases since investors are able to realize greater yields by switching to other investments that reflect the higher interest rate. For example, a 5% bond is more valuable if interest rates decline since the bondholder receives a fixed rate of return relative to the market, which is offering a lower rate of return as a result of the decrease in rates.
The interest rate risk of Amway is the risk that the fair value or future cash flows of Amway’s financial instruments will undulate because of changes in market interest rates. Amway’s exposure to interest rate risk arises primarily from deposits with licensed banks and financial
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The currency giving rise to this risk is primarily United States Dollar (“USD”) and Singapore Dollar (“SGD”). The recent ringgit continued depreciation, causing Amway purchases with other countries need to pay more. On the other hand, Amway take advantage of ringgit depreciation to export their products or make other country investors invest their shares and bonds.
Commodity Price Risk
The commodity price risk is a change in the price of a production input will adversely impact a producer who uses that input. Commodity production inputs include raw materials like cotton, corn, wheat, oil, sugar, and soybeans. Factors can influence commodity prices, such as political and regulatory changes, seasonal variations, weather, technology and market conditions.
This risk is often hedged by major consumers. Besides, unexpected changes in commodity prices can reduce a producer's profit margin, and make the budget difficulties. Fortunately, producers can through the implementation of financial strategy to protect themselves from fluctuations in commodity prices that will ensure a commodity price or lock in a worst-case-scenario price. Furthermore, futures and options are the most common of financial instruments used to hedge against commodity price

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