Foreign Exchange Exposure of BMW AG

Running head: REPORT 0
FINANCE
JULY 4, 2019
STUDENT DETAILS:

REPORT 1
Contents
Introduction............................................................................................................... 2
Foreign exchange exposure of BMW AG..........................................................................2
Management of foreign exchange exposure of BMW AG......................................................4
Appropriate and inappropriate aspects of management of foreign exchange exposure of BMW AG...5
Suggestions for improvement in management of foreign exchange exposure of BMW AG..............6
Conclusion................................................................................................................ 7
References................................................................................................................ 8

REPORT 2
Introduction
The foreign exchange exposure is considered as risk or loss, which the international financial
transaction can take place because of the fluctuation in the currency. The foreign
exchange exposure is also considered as the exchange rate risk, foreign exchange risk as well
as the currency risk. The foreign exchange exposure defines a chance that value of
investment can reduce because of the changes in relative values of included exchanges. The
foreign exchange risk takes place while the corporation involves in financial transaction
denominated in the currencies excluding the currencies where the corporation is based. The
depreciation of the base currency, rise of base currency or appreciation of denominated
currency or devaluation of denominated currency would influence cash flow originating from
the transactions (Hoberg and Moon, 2017). The foreign exchange risk may also affect the
investors, who make trading in the foreign marketplaces, and business involved in the export
of products or services or import of the products and services to the different nations. In the
following report, meaning of foreign exchange exposure, foreign exchange exposure of
BMW AG, administration of foreign exchange exposure of BMW AG, various aspects of
management of foreign exchange exposure of BMW AG is discussed and critically
examined. The following parts also discuss the suggestions to improve the management of
foreign exchange exposure of company.
Foreign exchange exposure of BMW AG
Foreign exchange exposure is considered as a risk of the company, which commences at the
time of financial transactions in the international currencies. All currencies can experience
the time of high volatility that may adversely affect profit margins if suitable approaches are
not in the place to secure cash flow from unexpected fluctuation in the currency (Alford and
Lau, 2015).

REPORT 3
People all over the world are familiar with the auto manufacturer BMW. The company has
been building automobiles in Germany since 1916, after all. Over time, an organisation lost
the share of market in Germany, as well as by year 2011, less than 20% of BMWs sold were
sold in Germany. Since 2011, the company has perceived important development in
marketplaces such as India, Russia and China. Further, BMW manufactures the great
majority of the cars in Germany, and trades the larger quantity to the remaining world. BMW
faces the foreign exchange risks at great level. The multinational companies including BMW
are greatly influenced by the macroeconomic condition. The foreign exchange risk or
exposure is one of type of financial risk. In respect of foreign exchange risk, sale of cars
outside Euro-zone provides increment to the foreign exchange risk because of the changes in
exchange rate, particularly between British Pound, Japanese Yen and US dollars (Zhao and
Huchzermeier, 2018).
The International financial disaster as well as the effects change on raw materials
marketplaces in foreign and the currency exchange rates on financial, good, and service
marketplaces have substantial influence on the revenue and earning of the multinational
companies. To get positive outcomes, significance level of business in the upcoming period
and profitability, the BMW Group knows that this should uncover itself to the level of
measures risks. According to the latest quarterly statement to the shareholders, it is
recognised by BMW Group that the management of the risk is basic precondition for being
capable to handle with cash flow of change in related legal, financial, political, and technical
background. The annual report of company covers the topic of risk in relation to sales
obligations, pension obligations, obligations in relation to the raw materials and other detailed
elements of business. It is stated by company that in the discussion of BMW’s Group, the
company will make focus on the financial risks and that related to the foreign risk
management.