While during 2004, Xian Janssen Pharmaceutical Company suffered greater losses of 75 Million Chinese Rmb which represents about 6.9% decrease in the Operating income of the Company.
These losses are not the responsibility of the parent Company Johnson & Johnson; however it’s the responsibility of the Subsidiary Xian Janssen Pharmaceutical, so Johnson and Johnson was generating profits while on the other hand, Xian Janssen Pharmaceutical was losing income.
If those reductions of operating income continued, soon this will affect the profitability of Xian Janssen Pharmaceutical, and thus upset its shareholders, and so they might sell their shares till its prices fall, and then the company might suffer from Bankruptcy.
This pure use of foreign exchange forwards would be due to some factors including;
The limited availability of other foreign exchange derivatives or risk management alternatives, the restricted policies of Johnson and Jonson, the regulatory restrictions in China on the use of derivatives and currency products, and the unwillingness of Johnson and Johnson to either carry the risk itself or allow more breadth in Management of the foreign exchange exposures of its Chinese subsidiary.
The relationship between actual spot exchange rate, the budgeted spot exchange rate, the forward rate, and the expectations for the Chinese subsidiary’s financial results by the U.S parent company: Nearly all multinational companies, like all organizations, ordain off of budgets. The Chinese subsidiary of J&J isn’t contradictive. Paul Young must assemble a strategic a business and marketing plan, associated with a budget, for Xian-Janssen’s showing...