Answer:
In international business there is always an exchange risk involved since there is more than one currency involved. There are ways to protect oneself against this risk. However one is chooses not to do so then the activity would go into the realm of currency speculation.
Currency speculation by its very definition is a risky business. Normally this would be done by using one currency to buy another with the hope that at a future date or time the currency that has been bought will appreciate so that when one converts back to the original currency, after paying the conversion cost for both transaction, one will make a profit. For instance if on buys $1000 using Indian Rupees (INR) when the rate is INR50= $1 and sells it when the rate it INR60 = $1 one would make a profit of INR10, 000 (ignoring transaction costs). However if the exchange rate remains below the buying rate of INR50=$1 then one will always make a loss.
This is the risk associated with currency speculation.
Answer:
The continued rise of the Australian dollar in 2010 and 2011 would have caused more problems for Billabong as its exports became even more expensive for U.S. consumers. Many students will probably suggest that long-term, Billabong should consider moving production to the United States to decrease its exchange risk.
Answer:
a) Volkswagen would have had to pay an expensive commission to hedge against the appreciation of the Euro. Also, if the Euro depreciated Volkswagen would lose a lot of profits if it hedged against appreciation. If Volkswagen had hedged 70%, it would have profited more that year.
b) The US dollar could have depreciated against the Euro for a number of reasons including higher relative inflation, increased demands for imports to the US, or lower interest rates in the US relative to the Euro. In 2002-2003 US inflation was slightly higher than in Europe and US consumers bought more imports by use of debt.
c) Volkswagen can shift production to the US so that the company's business is not as affected by the Euro-Dollar exchange rates.