This preview shows page 1. Sign up to view the full content.
Unformatted text preview: panies that operate
internationally. This is partly because (as we have seen before) international
operations typically expose a firm to exchange rate risk. It is also due to the dangers and delays involved in shipping goods long distances and in having to cross
at least two international borders.
Exports of finished goods are usually priced in the currency of the importer’s
local market; most commodities, on the other hand, are priced in dollars. Therefore, a U.S. company that sells a product in Japan, for example, would have to
price that product in Japanese yen and extend credit to a Japanese wholesaler in
the local currency (yen). If the yen depreciates against the dollar before the U.S.
exporter collects on its account receivable, the U.S. company experiences an
exchange rate loss; the yen collected are worth fewer dollars than expected at the
time the sale was made. Of course, the dollar could just as easily depreciate
against the yen, yielding an exchange rate gain to the U.S. exporter. Most companies fear the loss more than they welcome the gain. 616 PART 5 Short-Term Financial Decisions For a major currency such as the Japanese yen, the exporter ca...
View Full Document