Euro Costs vs. Dollar Revenues:How EADS Manages Foreign Exchange Exposure
Code
CC-111-011
Date
2011
Industry
Government / Public / Non-profit Sector
Length
12Pages
Author(s)
Xu Bin; Liu Ying
Language
English
Company
12Pages
Source
CEIBS
Discipline
Accounting & Control
Key Words
exchange rate risks
Description
The European Aeronautic Defense and Space Company (EADS), parent company of Airbus, has caught up with Boeing in commercial aircraft deliveries and sales revenues, but fall largely behind Boeing in net profits. One major reason for EADS’ poor profit performance is a mismatch in its cost currency and revenue currency. About eighty percent of EADS’ costs occur in the euro area, while sixty percent of its revenues are in U.S. dollars. The profits of EADS suffer greatly during the first decade of the 21st century when the euro appreciated sharply against the U.S. dollar. This case discusses EADS’ operational currency exposure and the strategies EADS uses to manage the exposure. In particular, the case elaborates on the natural hedge methods of production diversification and global sourcing. The case can be used in courses of international finance and risk management.
Case Sample
