Exchange rates and currency risk 1 63 assignment

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Exchange Rates and Currency Risk 1
6.3 – ASSIGNMENT: LOCATION DECISIONS (PLG1) The wage rate and productivity may show the economics of the country but if the currency exchange rates are unfavorable, any savings left will be reduced. Organizations can take advantage of favorable foreign currency rates by relocating or exporting to that particular country. However, currency values fluctuate in most countries. In other words, a good location now may be a disastrous one a few years down the road. Costs Cost can be categorized into tangible and intangible cost. Tangible cost refers to costs that are identifiable and can be measured such as labor, material, taxes, rental, utilities, etc. Costs such as transportation of materials and goods and site construction depend on the location of intent. Some governments have incentives given that would affect the cost of the location. Intangible costs are less quantifiable such as education, quality, employees’ attitude, community attitude, etc.. Therefore, the management of the organization has to take into account those hidden and non-hidden cost to ensure that setting up an office in that location would be beneficial. A low tangible cost area may also mean that the intangible cost in low. Even if the organization saves money on the rental, materials, etc., they may have ended up making a loss due to the low quality of the product or delays in production. Political Risk, Values and Culture The political risk usually refers to the governments’ view towards private and intellectual properties and stability may be constantly changing. The decisions that the government made for a particular location may not last forever. The location may seem good now but a few years down, there is a possibility that the government would need that land back, which would be a cost to the organization to relocate again.

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