Case Assignment Royal Caribbean Essay

2492 Words Dec 24th, 2014 10 Pages
a. Describe Royal Caribbean’s business. How important are international operations for the company?

At the end of the 1960’s, Wilhelmsen and Stephan came up with the profitable idea that the wealthy residents of Florida will consider paying top dollar amounts to cruise to the Caribbean Islands as a great alternative for a week or weekend getaway. After proposing this idea to Norwegian entrepreneurs, Royal Caribbean Cruise lines, was born.
Forty five years and forty ships later, based out of Miami Florida, Royal Caribbean is the second largest cruise line in the world, behind frontrunner Carnival. RCCL operates its ships under the brand names Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises, and Croisières
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Royal Caribbean uses US dollar as its functional currency. All international transactions in foreign currencies are translated into US dollars at the spot rate. Monetary assets and liabilities expressed in foreign currencies are translated at exchange rates at the balance sheet date.

In order, to minimize some of the risks, Royal Caribbean uses certain hedging instruments. The exposure under foreign currency contracts, fuel swap, and interest rates is limited to the cost of replacing the contracts in case of non-performance by the counterparties to the contracts, all of which are their lending banks. According to the information from Royal Caribbean’s official documents and data, it is clear that their international primary exposure to foreign currency exchange rate risk relates to firm commitments to ship construction contracts denominated in Euros. The business enters into euro-denominated forward contracts in order to control risks. In addition, Royal Caribbean is also exposed to foreign currency exchange rate fluctuations on US dollar value of foreign currency denominated forecasted transactions. The company takes advantage of natural offsets of its foreign currency revenues and expenses and enters into foreign currency forward contracts for a portion of the remaining exposure related to these

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