scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 710
Case Background In July 1993 Tiffany Company reorganized its Japanese distribution channel by repurchasing its inventory from its Japanese distributor Mitsukoshi Limited As a result of this action Tiffany would assume the responsibility of establishing yen retail prices holding inventory in Japan for sale and controlling local Japanese management Tiffany would be able to have control over retail price in Japan where historically had higher price Under the previous arrangement Tiffany contracted Mitsukoshi as the principal retailer in Japan and the transaction of wholesaling to Mitsukoshi was settled in US dollar under the new agreement Tiffany now faced the risk of foreign currency fluctuations Reasons for Managing Exchange Rate Risk Tiffany should actively manage its yen-dollar exchange rate risk for several reasons Exchange rate fluctuation increases the cash inflow volatility which could in turn affect Tiffanys cash position and tax implication Historically yendollar exchange rate has been volatile Management can concentrate on its main business The cost of hedging or insurance was not substantial cost is zero on average if the forward rate equals the expected spot rate There exists efficient foreign currency markets that Tiffany can rely on Tiffanys sales in Japan was about 200 million 1 of the 20b Japan market which is sufficiently large compared with the 180 million anticipated capital expenditures in FY 1993 Moreover the 115 million reversal of inventory from Mitsukoshi which would be repurchased over the next 4 year also presented a large amount of cash flow that could have large fluctuations if left unprotected this amount will be paid out in yen so it wont really be affected by the YenS exchange rate as Tiffanys can just use cash flows from its sales in Japan to pay Therefore their main concern as far as exchange rate risk is not the money they have to pay back but the
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA