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Global Financial Management: Managing operating exposure and FX risk at Nissan

See the attached file.

Managing operating exposure and FX risk at Nissan.

Global businesses are often exposed to financial risks such as currency volatility. These foreign exchange (FX) risks affect all aspects of a global firm. Next, you will read about the automobile industry. Auto makers' operations and manufacturing can be affected by currency fluctuations. In the assigned articles and case you will find out how Nissan and other firms managed this FX risk.

Required Reading:

Kim, Yong-Cheol & R. McElreath (2001) "Managing operating exposure: A case study of the automobile industry", Multinational Business Review. Detroit: Spring 2001. v 9, Iss. 1; pg. 21-27.

Book Review (2005) "The gaijin who saved Nissan", Business Week,1/17/2005, accessed 10/16/2010 at:
http://www.businessweek.com/magazine/content/05_03/b3916021_mz005.htm

Napolo, D. (2005) "Managing FX risk; an eight step plan to establish corporate foreign exchange policy", Treasury & Risk Management magazine, March 2005. Accessed10/16/2010 at:
https://www.wellsfargo.com/downloads/pdf/com/focu/risk/manage_fx_risk_reprint.pdf

Note: We also recommend you examine information on Nissan's websites below.

http://www.nissanusa.com/more-nissan-sites/

http://www.nissanusa.com/about/

Write a paper, answering these questions:

What did Carlos Ghosn and Nissan do in order to manage global financial risk and why?

Did Nissan follow Napolo's (2005) 8 steps? Discuss which steps they did and those they did not follow.

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Solution Preview

- State the problem, and then use the mod 5 materials to discuss how Nissan's CEO Ghosn was or was not effective in managing the international finances and risks of Nissan.

The problem that faced Nissan was that there was no vision or common long term plan. The company was making losses because nobody felt the need for making profits. The culture was lax, there was no focus on competitors, and there was poor product development. The international finance problem that Nissan faced was that there was there was a loss! 1) There was a real fear that Nissan would go into liquidation but nobody in the company believed it. The problem was that nobody in the company realized the huge financial risk that Nissan was facing.

CEO Carlos Goshen was very effective in managing international finances and risks. Carlos Goshen took two major steps to reduce risks. First, he reduced buying costs by 20%, closed down five plants, reduced capacity by 30% and laid off 20,000 workers. He reduced costs further by ...

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