The Rolls Royce Limited Effect On The Company Essay

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In this report we are going to discuss about the Rolls Royce Limited which exports aero engines to US. In 1978 and 1979 to maintain the export sales and won huge engine contracts Rolls Royce entered in contracts that were fixed in the dollars. While entering into the contracts exchange rate was about $1.80 for one pound and expected to fall over $1.65 so they did not cover their dollar cover exposure. By the end of 1979 £ 1 = $2.12. So Rolls Royce suffered loss of £58 million in 1979 in spite of increased sales because Rolls Royce’s operating costs (wages, components and debt servicing) are incurred in sterling. Appreciation of home country resulted in foreign exchange risk and economic exposure. So here in this report we are providing the factors that led to the economic exposure and inflation affect on the company. We are providing various financial and non-financial alternatives that Rolls Royce should consider while entering in the contract to eliminate or reduce the Exchange risk. INTRODUCTION Rolls Royce Limited is the British owned company which manufactures the aero engines. The engines manufactured by the company are supplied to the America. U S is largest consumer and supplier of the air frame. Pratt and Whitney Aircraft group (United Technologies) and General Electric’s Aerospace division is two US companies which dominates the market. Rolls Royce sales export sales are stable i.e 40 % of the total sales had been directed to the US market. Rolls

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