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International Finance

5. In September 1992, Dow Chemical reacted to the currency chaos in Europe by switching to Euro pricing for all its products in Europe. The purpose, said a Dow executive, was to shift currency risk from Dow to its European customers. Moreover, said the Dow executive, the policy was fairer: By setting the same DM price throughout Europe, Dow's new policy would nullify any advantage that a Dow customer in one company might have over competitors in another country based on currency swings.

a. What is Dow really trying to accomplish with its new pricing policy?

b. What is the likelihood that this new policy will reduce Dow's currency risk?

c. How are Dow's customers likely to respond to this new policy?

Solution Preview

a. What is Dow really trying to accomplish with its new pricing policy?

ANSWER. Dow was really trying to raise its prices in those European counties whose currencies devalued so as to preserve its dollar margins, which were eroding from the devaluations.

b. What is the ...

Solution Summary

THe expert determines what Dow really is trying to accomplish with its new pricing policy. The likelihood that the new policy will reduce Dow's currency risk is determined. This posting provides a detailed solution to the student's question.

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