Foreign Exchange and Political Risks in Volkswagen Group

International Money
and Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
Political Risk................................................................................................................................6
Exchange Rate Risk.....................................................................................................................7
Risk management strategies........................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
This study will discuss about foreign exchange and political risks that had influenced
Volkswagen Group and on the basis of identified risk strategies for risk management will be
recommended. Foreign exchange risk refers to losses that occur in international financial
transaction and the main reason behind this is currency fluctuations. Political risk refers to risk
that a business faces because of uncertain political environment of the country. Volkswagen
Group is a German multinational automotive manufacturing company that is headquartered in
Wolfsburg, Germany and it was founded in Berlin, Germany in 1937. Products of the company
include automobiles, commercial vehicles, internal combustion, engines, motorcycles and
turbomachinery. Volkswagen Group has brands automotive brands, commercial and designing
facilities. Owner of the company includes Porsche SE, State of Lower Saxony, QIA (Qatar
Investment Authority) and Volkswagen Group employs around 307,342 employees.
Company Description
Volkswagen Group operates worldwide and operates 118 production facilities across 20
European and 10 further countries in Asia, America and Africa (Fu, Ogasavara and Sousa-Filho,
2018). Concerned with production output in 2020 it was 8900,000. Concerned with market share
of Volkswagen Group, in 2020 its market share slightly increased. In 2020 Volkswagen Group
delivered 9,305,400 to customers worldwide. On the basis of market share Toyota is biggest
automobile brand and this is followed by Volkswagen Group. This means the on the basis of
market share Volkswagen Group is second biggest automobile company in the world (Wall,
2017). On the basis of markets for sales of Volkswagen Group, company has highest sale in
Germany which make it key market for Volkswagen Group and followed by this central and
eastern European market is second important market for the sales of Volkswagen Group cars.
Along with this, South America is another key market for products of Volkswagen Group. Other
than these, markets for Volkswagen Group products include Western Europe, North America and
Asia Pacific.
Financial trends for Volkswagen Group
3

Financial trends, is concerned with financial performance of the company and factors that
have affected financial trends of company. Financial performance of Volkswagen Group-
2020 2019 2018 2017 2016
Sales Revenue 222,884 252,632 235849 230682 217267
Operating
Results
9675 16960 13920 13818 7103
Earnings
before Tax
11667 18356 15643 13673 7292
Earnings after
Tax
8824 14029 12153 11463 5379
Above data about sales revenue, earnings before tax and earnings after tax outlines in the
year 2020 Volkswagen Group have experienced significant reduction in sales revenue, earning
before tax and earnings after tax. In this reduction was in sales revenue, earnings before tax and
earnings after sales have been seen after continuous increase from 2016. This means that from
2016 there is continuous growth in sales revenue, earnings before tax and earnings after tax. It is
being considered that the reduction is because of the impact of Covid-19. Above data outlines
that in 2017 performance of Volkswagen Group was very good and as result in 2017 there was
6.2% increase in sales revenue, 94.5% increase in operating results and 90.8% increase in
earnings before tax. This means that overall 2017 was very good performing year for
Volkswagen Group (Annual Reports, 2021). However after 2016 Volkswagen Group’s
performance is continuously increasing and in 2018 performance was moderate, this means that
even though there was no loss, however any significant profit and gain is also not visible.
Followed by this, in 2019 Volkswagen Group’s performance improved and increase in sales was
experienced. However, in 2020 sales revenue and other financial performances of the company
were less than 2017 in which company experienced significant growth and improvement in
financial performance.
Corporate and financial actions
Volkswagen Group has undertaken different financial developments in recent years and
one of the recent corporate actions of Volkswagen Group is to launch of new Volkswagen Polo
4