Competitive Exposure of General Electrics
Competitive Exposure
GM’s Case Study 3
Question 1 - Why is GM worried about the evolution of the JPY? * The Japanese automakers were one of the main competitors of General Motors because their main advantage came from having large portions of their cost structure denominated in Yen, which meant that they were liable to achieve significantly reduced costs in the face of currency depreciation. This reduced cost would comprise of lower cost of productions, thus leading to a rise in the Product demand due to lower prices and finally a higher market share in the US which would could cut into the sales and market value of GM. * Another reason (a combination of several exposures) for GM to be worried, relates to a commercial exposures of receivables and payables amounting to $900m, an investment exposure due to their equity stakes in numerous Japanese companies (Fuji, Isuzu and Suzuki- 20%, 49% and 20% respectively), a financing exposure through a yen-denominated loan (a result in having to repay more US dollars in comparison to the increase in Yen) and also the yen bond issue which were outstanding worth $500m.
Question 2 – What is different about competitive exposure? * Competitive exposure has nothing to do with Cash Flows or Balance Sheet as opposed to Transactional or transactional which portrays buy/sell activities and exposure from currency conversion from functional to home currency. * Competitive exposures are also difficult to quantify, as worth a specific amount. * It can effect a company’s baseline income through competitive advantage achieved by another company due to currency differences * It mostly arises from a foreign competition having their productions or transactions denominated in a different currency (their own country’s currency for instance) which gave them an added advantage during currency fluctuations and causing domestic companies to face competitive exposure.
Question 3 - Assume a depreciation of 20% of
GM’s Case Study 3
Question 1 - Why is GM worried about the evolution of the JPY? * The Japanese automakers were one of the main competitors of General Motors because their main advantage came from having large portions of their cost structure denominated in Yen, which meant that they were liable to achieve significantly reduced costs in the face of currency depreciation. This reduced cost would comprise of lower cost of productions, thus leading to a rise in the Product demand due to lower prices and finally a higher market share in the US which would could cut into the sales and market value of GM. * Another reason (a combination of several exposures) for GM to be worried, relates to a commercial exposures of receivables and payables amounting to $900m, an investment exposure due to their equity stakes in numerous Japanese companies (Fuji, Isuzu and Suzuki- 20%, 49% and 20% respectively), a financing exposure through a yen-denominated loan (a result in having to repay more US dollars in comparison to the increase in Yen) and also the yen bond issue which were outstanding worth $500m.
Question 2 – What is different about competitive exposure? * Competitive exposure has nothing to do with Cash Flows or Balance Sheet as opposed to Transactional or transactional which portrays buy/sell activities and exposure from currency conversion from functional to home currency. * Competitive exposures are also difficult to quantify, as worth a specific amount. * It can effect a company’s baseline income through competitive advantage achieved by another company due to currency differences * It mostly arises from a foreign competition having their productions or transactions denominated in a different currency (their own country’s currency for instance) which gave them an added advantage during currency fluctuations and causing domestic companies to face competitive exposure.
Question 3 - Assume a depreciation of 20% of