discussion

There are many challenges when it comes to global strategic plans for businesses. Compare and contrast the points provide information or concepts that I may not have considered.

The Impact of Foreign Exchange Translation on Profitability

While companies are entering foreign markets, there is accounting that needs to take place to understand the exchange rate and the risk of translation to the company (Ross, Westerfield, & Jordan, 2020). The foreign currency translation is away to report the results of its foreign business assets or liabilities into its reporting currency, and for John Deere into US Dollars. This helps the company to determine its balance sheet based on the translation of the foreign currency. The situation is that the exchange rate can change, and therefore a company may see an increased or decreased profitability based on the direction the exchange went. In the Annual Report of John Deere (n.d.) the weakening of the U.S. dollar is decreasing their cash flow, there for causing a decreased profit on their balance sheet. The unfavorable translation also can result or reflect a decline in sales, and with weaker demand there is going to be an impact on their foreign cash flow from sales.

With so much fluctuation in foreign exchange markets, companies need to be strategic in mitigating risks. According to Anthony (2018) there are three strategies that he suggests doing, which are hedging the risk with specialized funds, using forward contracts and using currency options. The hedging with exchange-traded funds which provide the investor with an aim to match actual performance of currencies they are using. The currency forward is an agreement to sell at a specific time and price, so they can lock in an exchange rate. That protects them from negative dips in the exchange rate, but also limits if there are positive fluctuations. The currency option is similar to the currency forward but gives flexibility in being able to choose not to sell at the expiration date.