Methods and Tools Used by Toyota Motor Corporation

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1. Methods and Tools Used by Toyota Motor Corporation
To hedge against any foreign fluctuation of currency, Toyota Motor Corporation uses the
foreign currency forward contracts to hedge against risks. The second method that the
corporation uses to mitigate risk against foreign currency fluctuation is called the foreign
currency options contracts (Lien, et al 2015).In actual sense, the Japanese currency will face
slight valuations in value of the pound, the euro, the dollar, the Swiss franc and even the
Australian dollar. All currencies affecting the value of the yen is exposing Toyota to fluctuations
in value (Chkili, 2016). For Toyota corporation , the risk managers can hedge against either the
currency futures or the options.
Toyota is an international corporation which has faced a lot of exposures in its currency in
relation to selling, purchasing and funding in different countries. The harzard in foreign currency
in Toyota is related to future assets, liabilities and net income. Toyota is highly profitable in
Europe and America so the US dollar highly impacts the foreighn exc. (Möllmann, et al, 2019).
hange currency harzard. Toyota has over the years employed derived functions in fiscal
instruments to pull off the exposure to foreign currency exposure. In Toyota portfolio, the
derivative involvement in currency rate understanding in rate of options and pulling their
planetary hazard.
Changes in echange rates affect Toyotas operating costs, income of running , net income,
gross borders, and the net maintained incomes. tOyota uses the forward contract method in
fudging foreign exchange forward that are mostly associated with trade recievable denominated
in US dollars. The company enters into the foreign currency contracts to hege of the net
investments, forecast in foreign currency, interchange the foreign rate of fluctuations on assets

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and liabilities. The hedging in forward contracts reduces the foreign exchange risks while dealing
with in different countries by managing gross in the foreign currency that the exchange is
denominated in. Toyota uses hedging against foreign currency exposure by the use of currency
forward contracts. The corporation may use the direct forward hedging if the receivables and the
payables are dominated by foreign currency in the contract available. If this does not work, the
corporation uses the cross forward hedging (Maples, et al, 2017).
Advantages of forward contracts in managing currency risk
The nature of competition among firms has increased as the firm engages in international
trading while also increasing the exchange rates volatility. The advantages are that the existence
of foreign exchange risks which are unavaoidable has brought in the development of different
types of foreign risk exchange. The volatility of exchange currency has led to innovativeness in
forward contracts that has been brought about by risk management tools(Maples, et al, 2017).
The analysis of the forward contract and the currency risks decides the instrument to choose in
foreign exchange risk. It is therefore desirable to predict the magnitude and direction of future
spot rate which is used in optimization of effectiveness of futures and options. The effectiveness
of hedging may differ depending on the alternate risk management tools. Toyota corporation can
either use the forward contract as a hedge instrument that will match the risk profile of the
currency underlying position as close as possible. (Majdoub, and Sassi, 2017).
This study measures the effectiveness of Toyotas risk management tools and the
uncovered positions in currency. Currency futures and forward contracts in Toyota results show
how effective currency futures are and how effective they cover the hedge. Since the
management is concerned with exposure of currency the forward conracts and the futures and