Foreign Exchange Rate Fluctuation on Pricing Decision

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What implication do fluctuations in foreign exchange rates have on the pricing decisions of export marketing managers? Globalization is no longer an abstraction but a stark reality that virtually all firms, large and a small, face. Firms that want to survive in the 21st century must confront all encompassing force that pervades every aspect of business. However, exchange rate fluctuation is an issue that affects the decisions marketing managers make about pricing.

Management faces different decision situations, depending on whether currencies in key markets have strengthened or weakened relative to the home country currency. If the home country currency is weakened this would be an opportunity as exchange would be in a favourable position. A producer in a weak-currency country can choose to cut export prices to increase market share or maintain its prices and reap healthier profit margins. When revenues are translated into home country, the returns would be substancial. On the other hand it is a different situation when a company’s home currency strengthens, management would see this as unfavourable for exportation as overseas revenues would be reduced when translated to home country currency. Management in making there decision must consider currency fluctuation even though the degree of exposure varies among companies. In an example, Honda is heavily dependent on the North American market, which accounts for more than half of its operating income. In trying to reduce currency fluctuation about three quarters of the cars Honda, sells in America are produced in the United States. In late 2000 the dollar had fallen to 108 Yen compared to 113 Yen the previous year, the unfavourable shift had a direct negative impact on corporate profits. In responding to currency fluctuations global marketers could utilize other elements of the marketing mix besides price. If demand ids inelastic then the upward price adjustment due to strengthening of the currency would have...
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