Individual Assignment 2: Far East Trading Company
THE CURRENCY CRISIS IMPACT ON GLOBAL MULTI-NATIONAL FIRMS:
Budgeted financial statements of a given firm should have taken into account potential changes of international Foreign eXchange (FX) rates. In the short-run an unexpected change in the FX rates could impact the one-year operating budgets of multi-national firms in the U.S.A. and worldwide. The contracts that companies may have made for the coming financial year will have a definite impact on the planned earnings for the firm. The corrective actions can be taken immediately, but the results will not show a positive turnaround until the latter part of the year or perhaps even the following year or more depending on the impact to the firm. Furthermore, the sales prices will be greatly impacted. The high operating costs will impact the sales and the growth will seem low even if there was significant development during the financial year. Depending on the change in the FX rate, the company can react appropriately in order to compensate for the negative impact.
The long-term effects of such an event in the world market imply that the cash flows are negatively impacted beyond five years. In the case where a certain currency may fall significantly causing regional economy to enter a recession will impact firms at a global level. Regardless of the firm serving a domestic market or a global market, the FX rates will impact firms world-wide. In certain cases, many firms may not be able to take corrective actions in the short-run and may not survive. While the larger firms will put a long-term plan in place in order to recover from the crisis and display a positive turn in a period longer than five-years. After over a decade of miraculous grown in the economic and industrial markets, the South-East Asian market plummeted with the fall of the Thai baht. The...