Australian Dollar Case Study

The fall in the value of the Australian dollar against the U.S. dollar benefit Billabong because consumers in foreign are able to afford their products. Billabong has businesses outside of Australia, and 80 percent of the sales are from foreign market in 100 countries. The United States account about 50 percent the company’s sales. Billabong products are linked to the value of Australian currency. As a result, the fall of Australian money will cause Billabong products to become cheap in foreign market. The reverse would happen if there is a rise in Australian dollar then the products are expensive. For every 1 cent in the exchange rate is a 0.6 percent difference in profit for the company. During the financial crisis in 2008 to 2009, Australian …show more content…
If they use this method then they insure themselves against foreign exchange risk. With currency sway, Billabong can exchange one currency to another currency along with the principal and interest. Once they agreed on the amount, it will be flexible during the foreign exchange. Since Billabong should not have relied on foreign exchange market because of the fluctuation of currency, it is hard to know the prices of your products in the future. The currency market is constantly changing that can cause high risk when companies rely on it. Billabong was able to make profit the financial crisis in 2008 to 2009, but the currency market changed unexpectedly that increases the value of Australian dollar. Sales in the United States were declining since the cost of their products was rising. In addition, Billabong relies heavily on United States since most of the profits are from there. They count on the foreign exchange market that causes trouble to the company since they need to fix the prices as consumers in foreign market are not purchasing their …show more content…
They used to have 70 percent of hedged but they changed it to 30 percent of foreign exchange currency. Due to the rise of value in euro back in 2003 that took many companies by surprise. The exchange rate were fluctuating in 1999 to 2002, but by 2003 there was an increase in rate €1 = $1.25. When the rate were still the same €1 = $1, Volkswagen was able to make profit. It cost them €14,000 to make and sell the cars for $15,000. However, the rise of the dollar value will give them a loss since they can only sell the cars for $12,000. Volkswagen exports cars to the United States saw the fall of the value of the dollar against the euro. Experts were not able to predict the changes in the value of the currency. This causes problems to most companies in Europe since they do businesses in United States. Volkswagen missed the hedge of their foreign exchange exposure. They had lost €1.2 billion because of their decision to use 30 percent of hedge on foreign exchange