Chapter 8, Problem 2ST

d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in dollars.  e. Explain to Galina Works how, in respect of foreign sales, discounting and factoring can be used as hedging tools to manage foreign currency risk.

Which of the following is an example of managing economic exposure by flexible sourcing policy?  An American company sells its products in Brazil and Portugal. Reduced sales in Brazil due to the dollar appreciation against the “real” can be compensated by increased sales in Portugal due to the dollar depreciation against the euro. If yen is strong, it is preferable for a Japanese company to open a manufacturing subsidiary in the U.S. to produce and sell its products there. An American IT company hires software developers in Ukraine because of the weak position of grivna against dollar. A Canadian company spends a lot of money for research & development activities to improve its reputation and gain more customers.