Palmer Equipment Company is a multinational firm that sells exercise equipment to fitness clubs and to individuals. When customers buy Palmer’s equipment, they typically pay 20% down and pay the balance within one year. Palmer’s primary market is the United States, where it makes 60% of its sales. Palmer makes 10% of its sales in Japan and 30% in Europe. All foreign sales are denominated in the local currencies. All of the equipment that Palmer sells is manufactured in southern China. Palmer doesn’t own the factories but contracts with various factory owners for the manufacture and delivery of equipment. Palmer’s equipment purchase contracts are denominated in Hong Kong dollars.
Palmer has obtained its long-term debt financing from a mixture of U.S., Japanese, and German banks. About half of the loans from U.S. banks are variable-rate loans; the remainder of Palmer’s bank loans have fixed rates. Recently, Palmer has seen its earnings fluctuate wildly from one year to the next. As the recently appointed head of the corporate risk management committee, you have been asked by Jefferson Todd Palmer, CEO of Palmer Equipment, to briefly summarize the different types of risk that Palmer faces.