THE RISING EURO HAMMERS

AUTO PARTS MANUFACTURERS

Presented By :- GROUP 6
AMITAVA (13067)

ARUN ANAND DONNI (13073)

DAVIS (13079)

HIMANSHU Kr. SINGH (13085)

MADHUR SHETTY(13091)

NAGASHREE(13097)

PRIYANKA(13103)

SHRABANI(13109)

SUNAINA(13115)

VIRENDER PAL BHASIN (13121)

CASE FACTS:-
SMS Elotherm:-
CEO- Udo Pfeiffer
German manufacturer of machine tools.
Signed deal worth $1.5 million with Daimler Chrysler.
Initial Estimated Profit - 30000 euro each.
After 3 days, dollar slid against euro.
Actual Profit - Profit decline by 8000 euro (exchange rate- 1 = $1.33)


Keiper:-
Manufacturer of metal frames for automobiles seats.
In 2001, opened plant in London, Ontario(Canada).
Supply US operations of Daimer Chrysler.
Advantages :-
1.) US dollar had also depreciated against the Canadian dollar .
2.) Euro appreciated against the Canadian dollar.


Q&A:-
1) Could SMS Elotherm have taken steps to avoid the position it now found itself in?
What were those steps? Why do you think the company did not take these steps?
Yes,
SMS Elotherm could have avoided this position they found themselves in by
buying Forward Contract or by using different hedging part of their funds. They
could have also tried to enter a contract where their selling price would be
proportional to their manufacturing costs and stated both in the same currency.
They probably did not take any steps to protect their money since they were
achieving a very large profit (30,000 euros per machine) and hedging would also
cost them money which would decrease their profits.

2.) Why was Keiper weathering the rise of the euro better than SMS?

Keipers manufacturing plant was based in Canada, and hence their
manufacturing costs were also in Canadian dollars. The Canadian dollar is
also close to the US dollar so that any depreciation would not affect it as
much as the euro. Due to this, the exchange rate fluctuated less and so
they did better than SMS Elotherm.

3) In retrospect, what might Keiper have done differently to improve the value
of its real hedge against a rise in the value of the euro?

Although Keiper had created a sort of hedge by basing their plant in
Canada, they could have also invested in a forward contract as further
precaution.

4) If the US dollar had appreciated against the euro and Canadian dollar, instead
of depreciating, which company would have done better? Why?

If the US dollar had appreciated against the euro then SMS Elotherm would
do better but if the US dollar had appreciated against the Canadian
dollar, then Keiper would do better. Regardless Keiper had a hedge against
the value of the euro so they would still do okay.

THANK
YOU