Tiffany Case

Powerful Essays
1) In what way(s) is Tiffany exposed to exchange-rate risk subsequent to its new distribution agreement with Mitsukoshi? How serious are these risks?
.
1) Transaction Exposure, the probability of loss associated with a business transaction denominated in a foreign currency, due to changes in the exchange rate .
2) Operating exposure is the degree of risk that a company is exposed to when there is some type of change in varying currency values that are relevant to the operation of the company. Tiffany is exposed to foreign exchange risk by selling directly to the Japanese market. The extreme volatility in the exchange rate creates significant uncertainty in what the future exchange rate and profits will be if left unprotected. It is the unpredictable foreign exchange rate fluctuations that pose a serious risk in the Tiffany case. Classic behavior of the Yen/Dollar exchange rate over the years has proven to be volatile. Even when we look at the data for a six month period, April through September, the exchange rates fluctuated as much as 10%, (from 133.30 Yen/$ to 120.07 Yen/$). {Exhibit 6}
Assuming that all costs incurred in $ dollars and prices for consumers remains the same, the 10% fluctuation as we see during this 6 month period, translated into dollars, represents a third of a reduction in the net results. ($25 mln -/- $75 mln x 10%) to $16.67mln. Tiffany is making profits in Yen they have to convert the Yen to $ dollars to take bring back to the United States.
2) Should Tiffany actively manage its yen-dollar exchange-rate risk? Why or why not?
Tiffany should actively manage its yen-dollar exchange risk. With Tiffany now doing business in Japan, they have the potential to have a large amount of Yen cash flow. If Tiffany doesn’t mange the currency exchange risk then their profits will fluctuate. As we see over the 6 month period outlined above, the exchange rate fluctuated by 10%. By implementing a hedging strategy they can secure their earnings and

You May Also Find These Documents Helpful

  • Powerful Essays

    Tiffany case

    • 1391 Words
    • 6 Pages

    Tiffany & Co. is a world famous retailer, designer, manufacturer, and distributor of luxury fine jewelry. It was founded in New York City in 1837 by Charles Lewis Tiffany and John Young. In 1979, the company sold to Avon Cosmetics who change the market strategy form luxury jewelry to less expensive items in next few year. Until 1984, the company sold to a group of investors, it had reinstate the exclusivity and luxury again. Now, it has been growing to one of the top luxury goods and jewelry retailers…

    • 1391 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Tiffany Case

    • 632 Words
    • 2 Pages

    Tiffany & Co Case Study Background Tiffany & Co. was founded in 1837 in New York City by Charles Lewis Tiffany and John B. Young. After decades of development, the company has grown to an internationally famous designer and retailer of fine jewelry, diamonds, timepieces and other luxury accessories. In July 1993, Tiffany made a decision to directly operate sales in Japan, rather than profiting from medium corporation Mitsukoshi. According to this decision, Tiffany will pay Mitsukoshi 27% of net…

    • 632 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Tiffany Case

    • 359 Words
    • 2 Pages

    1. Exchange rate point of view. From the story, Tiffany bought the property and inventory from Japan Mitsukosi. It will expose to the exchange rate translation risk. So it should do the risk management. The analysis structure will be that: (1) Define the risk source: the exchange rate flucturation, the cash flows of different currencies from asset change, account receivable and account payable. (2) Define the scope of risk control: the natural currency settlement hedging, the overflow exchange…

    • 359 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Tiffany Case

    • 524 Words
    • 3 Pages

    Tiffany Case Amy Simmons Regis University With the recent restructure of Tiffany Japan, the profits earned by our Japanese division are now exposed to foreign exchange risks that were previously not a concern. In light of this new exposure, it has become imperative that we needed to determine whether or not Tiffany should implement a risk management program using financial derivatives to hedge against this risk. The first step in this evaluation was to determine the amount of profits…

    • 524 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Tiffany Case Questions

    • 1154 Words
    • 4 Pages

    Tiffany & Co. Case Study After Tiffany & Co. made the new retiling agreement with Mitsukoshi Ltd in July 1993, Tiffany & Co Japan. Inc started to be responsible to manage the operations of 29 boutiques in Japan. Tiffany will now face both opportunities and risks. Prior to the new agreement, the wholesale transactions were dominated entirely in dollars, so yen/dollar exchange rate fluctuations were not the reason of Tiffany’s cash flow volatility, and Mitsukoshi bore the exchange risk between the…

    • 1154 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Tiffany Case Study

    • 2791 Words
    • 12 Pages

    January 31, 2003, compared to $667,647,000 and 3.0:1 on January 31, 2002. Tiffany suffered a loss in 2001 due to economic conditions, especially post- September 11 results. B. Strategic Posture: From the beginning, it was clear that Charles Tiffany’s vision of establishing the grandest preeminent house of design and the world’s premier jewelry house, his vision has held true even over a century later. Mission: Tiffany is a retailer, designer, manufacturer, and distributor of luxury fine jewelry…

    • 2791 Words
    • 12 Pages
    Powerful Essays
  • Best Essays

    Tiffany

    • 2904 Words
    • 10 Pages

    Developing Luxury Brands Nikita Richards Serena Gossain March 13th 2015 Kamilla Ismailova S00806778 Summary The report examines the brand identity of Tiffany & Co in order to comprehend the underlying reason behind the global success of the company. In order to main this position the Tiffany has decided develop a new product range along with the openings of three new stores in an attempt to preserve the global position of the brand. This report draws attention to the…

    • 2904 Words
    • 10 Pages
    Best Essays
  • Good Essays

    Tiffany & Co Case Study

    • 1177 Words
    • 5 Pages

    Tiffany Case Study Introduction Tiffany was founded in September 18, 1837 and for about 170 years, the brand has been successfully opening several stores and establishing the brand as the top place to buy fine jewelry of high quality. The brand has been dedicated to provide their customers with original designs as well as the ultimate in-store experience. They know that their customers expect nothing less than top quality in jewelry and services and Tiffany’s has done just that for…

    • 1177 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Tiffany Case Analysis

    • 1787 Words
    • 6 Pages

    summary Tiffany and Company is one of the leading U.S. luxury jewelry brands, and their telltale “little blue box” has become a coveted item by women everywhere. Tiffany & Co. was founded in 1837 by Charles Tiffany and John Young and has grown to generate more then $2.6 billion in revenue through their 167 global retail outlets. The growth strategy that has seen them through their long reign is “growth without compromise”. In 2007, due to objections from their largest shareholder, Tiffany began looking…

    • 1787 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Tiffany Case Analysis

    • 1438 Words
    • 6 Pages

    Tiffany & Co. Overview Tiffany & Co. is a retailer, designer, manufacturer, and distributor of luxury fine jewelry. As of January 31st, 2003, they had 44 company-operated stores within US borders and 82 company-operated stores internationally. Fine jewelry makes up 79% of their net sales followed by other products such as timepieces, stationery, and sterling silverware. Michael J. Kowalski, Tiffany & Co.’s current CEO, has the same mission the company had when it first started in 1837:…

    • 1438 Words
    • 6 Pages
    Good Essays