Automobile Heading StrategyEssay Preview: Automobile Heading StrategyReport this essayTransaction exposure basically measures the extent to which financial obligations and commitments of the past are subject to the exchange rate risk. The greater the volatility of value of the financial contracts for the company in response to changes in exchange rates, the greater the transaction exposure for the company. Net transaction exposure for a company can only be estimated because there is no particular formula for calculation of the net transaction exposure. Transaction exposure directly affects the costs of raw materials purchased in currencies other than EURO. The values of financial commitments that the company makes in foreign currency change directly in response to currency fluctuation.
On the other hand, operational exposure measures the change in the value of the company due to change in future cash flows caused by currency rate fluctuations. In other words, this exposure measures the extent to which revenues and profitability are exposed to exchange rate risk. Operating exposure of BMW is much more significant that transaction exposure because a significant part of sales revenue is dominated in foreign currency and has to be converted into domestic currency. Operating exposure also measures the change in the competitive position of the company in response to change in the exchange rate. Although costs of new models launches for BMW increased significantly, the competitive position of the company did not change significantly due to high operational efficiency.
The BMW M2 sales line
Bengaluru-based Ford Motor Company (NYSE: BF) sold 8,000 of its M2 models in 2010. The company did not enter into direct sales, nor was its sales to Europe or Asia in 2010 in a direct sale phase. The Company was not affected by a financial crisis, or at all.
Expected decline of sales prices during the period 2010-12
During the period 2010-12, BMW sales declined. BMW sales have fallen at a rate of 18 percent a year since 2005. Sales to Asia, Europe and Asia increased.
The annual growth rate (AR) of BMW is greater than at any time since 1997. Since 2007 BMW sold less than 1.5 percent of the global market per year. The growth of BMW is attributable to increased operating costs and to less-than-stellar margins.
Sales of new BMW M1, M2 and M3 vehicles decreased. Sales of those cars to Europe decreased 8% and 5% respectively between 2008 and 2010, according to the Automotive Information Service on November 22, 2012. Although BMW also reported revenues during the period that it is trading at a loss, the decline in sales prices remained large and the company’s operating profitability declined during the period that it was trading at a loss for the fourth consecutive year.
Expected declines in the value of investments
The estimated value of all existing non-investment capital investments declined from the previous quarterly period after the first two quarters of the year. Based on the Company’s current and expected cash flow, such a loss could not be considered as a result of the stock price decline.[2] During this period, the value of some investment capital investments decreased but not to the extent that they were valued at the beginning of the second quarter of the year. The value of such investments decreased because of the economic effects of the Great Recession and continued uncertainty in the US. BMW used to have $19.25 billion in outstanding non-U.S. convertible debt at September 1, 2010. These investments will continue to flow through the Company’s bankruptcy proceeding in December 2020. The value of these investments could not be considered as a result of the value of capital investments for the Company’s other investments.
Dividends
The Company’s shareholders paid a dividend in April 2010. The dividend payout is based on the expected performance of the Company’s common stock in an open market underwriting competition.
A reduction in the value of its stock price
The Company currently pays the cost of its common stock to shareholders of its convertible and non-voting common shares to an extent that increases its debt and future expenses. Accordingly, the Company paid the cost of such common stock over the three years ending September 30, 2009 to shareholders of approximately $739 million. (The total cost to shareholders over the three years ended September 30, 2009 were $849 million.)
The Company currently does not issue new shares of common stock.
Revenues from continuing operations
The Company is operating at below current revenue levels by the use of foreign currency exposures. It expects profitability growth to continue, but also to be weak.
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