- Dell computers products its machines in Asia with components that are mostly imported from the USA. These computers are sold in the Asia regions with prices in the local Asian currencies. At the start of 2014 the US $ is expected to straighten against the main Asia currencies
- What is the likely impact on profits of dell in Asia if the US $ strengthen? Can you explain what would happen to dell’s revenues and costs in the Asia area?
- Dell faces a number of competitors in the Asia region who, unlike dell, produce components and finished computers in Asia. What is the impact of the strengthening of US $ on the competitive position of dell compered to these local Asian competitors?
- What would de;; do now to protect itself by hedging in order to lock in a desired currency conversion rate for its Asian sales next year?
- Companies with foreign exchange exposure can hedge this risk by using forwards contact or by using the futures market. However, these two products are not exactly the same. Can you explain the basic differences between the operation of a currency forward market and a futures market? You should be able to think of at least 3 main differences.
- Dell has decided to use forward or future markets in order to cover the risk of a decline in the Asian region currencies against the US $. What are the limits in this hedging, approach particularly given that this strengthening of the US $ is expected to be permanent.
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