Essay About Currency Risk And Toyota European Operating Exposure

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SHIKH MUHAMMAD FIRDAUS BIN SHIKH MAZLAN                      230285Mini-Case: Toyota European Operating Exposure – ANSWER-QUESTION 1 ANSWER           The automobile manufacturing can be categorized as a very capital intensive and complicated industry. Also the new manufacturing facilities are expensive. Toyota wanted to continue as long as possible to enjoy the welfare of scale and scope in manufacturing. Europe is still the number two largest foreign market for Toyota although only 26% of the cars sold in Europe were manufactured there. The market sales of European were behind to North America whereby the manufacturing that was done locally is 60%. With such numbers, it seems that Toyota did not take it as a pressing matters moving the manufacturing locally, as importing cars and components did not seem so risky and expensive and it worked well for that particular moment. QUESTION 2 ANSWER               If the British joins the European Monetary Union, the currency risk among the Europe and UK could be eliminate, but not among Europe and Japan. I think, the problem could not be solved when Britain joins the European Monetary Union. This is because the Euro had been continuously depreaciate against both the British pound and Japanese yen . Joining the EMU would only get rid of the currency deviations between the euro and British pound , not the currency deviations between euro and yen. Turkey, Portugal and Britain are the local manufacturing which contributes to 26% market sales of European. Portugal is the only one that has the Euro as official currency while Britain has pound and Turkey has the Lira.I think Britain will not join the EMU right now because due to the crisis, euro is not the most stable currency. Becoming members of the EMU and accepting euro as a main currency leads to dependency which is not what Britain need right now.QUESTION 3 ANSWER             The short term problem is the current exchange-rate issues regarding the continuously falls of the euro currency against the British pound and Japanese yen. There exist an significant fall in the euro value against the yen during 1999 and early in 2000. As for the long term problems, for some unknown reason the North American sales were supported by local manufacturing 100% unfortunately not in Europe. This is where the costs and losses come from .