Q1. How do exchange rate fluctuations directly affect the bottom line (profit) of a small business, and thus present a risk to be managed? Can Alliance Design Concepts share the foreign exchange risk that it experiences with others in its supply chain (e.g., suppliers, customers)?
Small businesses such as Alliance design concept illustrated in this article are adversely affected by currency fluctuations experienced in the market. A state of duality is expected to occur depending on the overall wave observed in the monetary value. It means that business is entitled to make profits or even be unlucky to experience losses, (Allen, McAleer, Peiris & Singh, 2016). This attribute is not favourable for most small businesses. It is because, firstly, …show more content…
This idea would be vital in mitigating the risks that occur inherently with sales and production facilities. One of the significant strength associated with some of these operational strategies is the need to have proper finances that would enable the business to flourish despite the occurrence of some of these risks. However, in Alliance design concept there is a very undermining weakness on the side of cash availability due to the threats from the ever-fluctuating exchange rates. Another drawback is observed in the value of the Canadian dollar when compared to the USD, (Allen, McAleer, Peiris & Singh, …show more content…
Matching money flows: in this view, foreign exchange inflows have to be matched with outflows. The Alliance design concept had significant inflows in USD and it as looking to raise the debt by considering the aspect of borrowing in USD, (Allen, McAleer, Peiris & Singh, 2016).
2. There can also be the move towards currency risk sharing agreements: it is done via contracts in which the two companies within the same range of sales and purchases contract agree that they will be sharing the risks arising from the instances of exchange rate fluctuations. Price adjustment clauses are featured in this strategy to bring about price normalization, ("Measuring Risks of Organizational Failure in Contract Exchange Structures", 2015).
3. The use of back to back loans: these are also known as credit swaps. It is a platform that favours two companies located in different countries in which these two parties agree on borrowing each other’s currency within a certain specified period. Similar to this strategy is the currency swaps, ("An Overview Of Foreign Exchange Transaction Risks And Strategies To Manage Them",
Small businesses such as Alliance design concept illustrated in this article are adversely affected by currency fluctuations experienced in the market. A state of duality is expected to occur depending on the overall wave observed in the monetary value. It means that business is entitled to make profits or even be unlucky to experience losses, (Allen, McAleer, Peiris & Singh, 2016). This attribute is not favourable for most small businesses. It is because, firstly, …show more content…
This idea would be vital in mitigating the risks that occur inherently with sales and production facilities. One of the significant strength associated with some of these operational strategies is the need to have proper finances that would enable the business to flourish despite the occurrence of some of these risks. However, in Alliance design concept there is a very undermining weakness on the side of cash availability due to the threats from the ever-fluctuating exchange rates. Another drawback is observed in the value of the Canadian dollar when compared to the USD, (Allen, McAleer, Peiris & Singh, …show more content…
Matching money flows: in this view, foreign exchange inflows have to be matched with outflows. The Alliance design concept had significant inflows in USD and it as looking to raise the debt by considering the aspect of borrowing in USD, (Allen, McAleer, Peiris & Singh, 2016).
2. There can also be the move towards currency risk sharing agreements: it is done via contracts in which the two companies within the same range of sales and purchases contract agree that they will be sharing the risks arising from the instances of exchange rate fluctuations. Price adjustment clauses are featured in this strategy to bring about price normalization, ("Measuring Risks of Organizational Failure in Contract Exchange Structures", 2015).
3. The use of back to back loans: these are also known as credit swaps. It is a platform that favours two companies located in different countries in which these two parties agree on borrowing each other’s currency within a certain specified period. Similar to this strategy is the currency swaps, ("An Overview Of Foreign Exchange Transaction Risks And Strategies To Manage Them",