Equip plc is a major exporter of agricultural equipment to Australia, New Zealand and throughout Europe. All production facilities are in the United Kingdom. The majority of raw materials and tools are also sourced in the United Kingdom, with a few imports from Eire, priced in sterling. Major competitors are based in the United States and Germany. There are plans to set up a manufacturing subsidiary in Australia, funded in part by an Australian dollar loan to be taken out by Equip plc. The new manufacturing facility would be used to source the Australian and New Zealand markets.

 

Required:

 

(a) Describe the potential currency exposures faced by this company before setting up the manufacturing subsidiary.   

 

(b) Consider the effects of setting up the new manufacturing subsidiary in Australia with respect?

 

(i) Will any of the exposures identified in (a) above be reduced?(ii) What new currency exposures will the group face?

Answer rating: 100% (QA)

Before setting up the manufacturing subsidiary in Australia Equip plc faces several potential currency exposures Transaction exposure Equip plc may be ... View the full answer