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Exchange rate fluctuation and company profitability

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If the U.S. dollar were to appreciate substantially, what steps could a domestic manufacturer such as Cummins Engine Co. of Columbus, Indiana, take in advance to reduce the effect of the exchange rate fluctuation on company profitability:

key words: Demand and forecasting, managing exports.

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Solution Summary

Effects of currency appreciation on domestic manufacturers are examined. The advanced why to reduce the effect of the exchange rate fluctuation on company profitability is determined.

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The effect of the currency appreciation depends on how much business a company does overseas. If its sales and costs are all domestic, the appreciation has litte effect. If it buys goods overseas, a higher dollar will benefit it. If it exports goods, a higher dollar means that its goods will appear expensive relative to foreign goods. A manufacturing exporter will have the majority of its revenues in U.S. dollars. So, the company may have very little ...

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