Volkswagen Expansion
HARVARD CASE REPORT
1. To what extent did Volkswagen face long term currency risk, and what were its sources?
2. How did Volkswagen manage its long term currency risk, and what might have been done differently to improve risk management?
1. To what extent did Volkswagen face long term currency risk, and what were its sources?
1960¡¦s: Throughout this decade VW consolidated its position increasing marketing, efficiency and production. The weak DM in relation to US dollar contributed to VW¡¦s exports to US. Long term currency risk in this stage was tied to a potential appreciation of the DM in the future, since VW was mainly a big exporter company that traded its local products abroad (especially in the US market).
1970¡V1975: The DM appreciated with respect to the dollar. German exports became expensive. This reduced VW profitability and liquidity and increased share of debt in capital structure (1973, equity dropped 31 to 24%). Japanese competition was......
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