Dell Mercousur Given how Dell translates its foreign currency financial statements into Dollars, how would a falling Brazilian Real affect Dell Mercosur’s financial statement? A country’s falling currency can affect a businesses operation in many ways. Partly its currency helps determine a company strategy and can impact decision making. For instance, as a result of the falling real, the Chief Financial Officer of Dell Mercosur has to base his strategies depending on the strength or weakness of that particular country’s currency.
One of the reasons is especially due to the fact that they own a manufacturing plant in Brazil. Most company’s future growth rates are highly dependent on its continued growth and success in its international markets. Furthermore; since Dell translates its currency according to the current rate system. The company’s assets and liabilities are translated at the exchange rate for that period and are also subject to the gains and losses of foreign exchange fluctuations. Dell Imports about 97 percent of its manufacturing costs. What type of exposure does that create for it?
What are its options to reduce that exposure? Importing 97 percent of its manufacturing costs exposes Dell to fluctuating foreign currency exchange rates which is unfortunate because their goal is to reduce the impact of fluctuations on the company’s profit earning and cash flow. Possible solutions would include hedging their exposure through the implementation of option and forward contracts. Describe and evaluate Dell’s exposure management strategy. As discussed in the reading, Dell employs the use of purchased option and forward contracts.
This is used as a hedge in order to protect the company against transactions that are whereby denominated in currencies other than the United States Dollar. Specifically, Dell uses forward contracts to protect monetary assets and limit liabilities. The corporate treasury is set in place to measure and monitor the flow of currency worldwide. One aspect of their strategy involves forecasting exposure, and the second key is to implement a sturdy design and execution. It is highly important that Dell monitors all foreseeable activities ranging from revenue capabilities to potential market fluctuation.
