International Finance

1098 Words5 Pages
1. The modes of international trade that car markers use are export and Joint venture. Export is the most common mode used by car markers. This mode is been carefully approached by users. Using this exporting approach it causes low risk as automobile companies, they do not put any of their capital in jeopardy. This help to protect against any losses or prevent the loss to be devastating. If a company is undergoing a decrease in its exporting, it can typically diminish the exporting or end the exporting business at a minimal cost. The second mode is joint ventures. Joint venture is a step that is mutually possessed and worked by two or more firms. Numerous firms enter the foreign market by taking part in a joint venture with firms that…show more content…
The third strategy is option. An option contract allows the user to sell or buy currency and it helps to protect its user who uses it. Inside an option contract it is been divided into 2 part, known as the put and call options. The user can buy or sell the currency at a certain price. The price is also known as the strike price or exercise price. Every option has an expiry date for it. The two appropriate strategies for the German car makers will be forward contract and option contract. A forward contract helps save the currency risk. For example Volkswagen needed 5 million SGD to buy a product. But the company only holds EUR therefore they need to exchange to SGD in order to buy it. However the spot rate could be low and wouldn’t meet that 5 million SGD even if they trade their EUR. This is when forward contract come in and allow to lock in the exchange rate so that they can meet the demand of 5 million SGD which they do not have to wait for the exchange rate to meet their demand wanted. This strategy helps to save a lot of time for the company. After the exchange rate was lock in they can then negotiate with the bank to get the money. The next strategy is option. For example if the Volkswagen receive revenue in term of USD. The revenue they earn will be converted to EUR from USD. However during the currency risk, EUR may strengthen. If USD is been converted to
Open Document