Question

The Walt Disney Company built an amusement park in France that opened in 1992. How do you think this project has affected Disney’s economic exposure to exchange rate movements? Think carefully before you give your final answer. There is more than one way in which Disney’s cash flows may be affected. Explain.

Answer 1

The very first reaction is that Walt Disney Company's economic exposure may increase because this new park would generate revenue in French francs (now euros), which someday would have to be converted to dollars. If the euro weakens against the dollar, the revenue will be converted to fewer dollars and thereby less income.

When European currencies (mainly the euro) weakens against the dollar, tourism by Europeans declines and Walt Disney's business in the U.S. decreases. By having a European amusement park, Walt Disney may be able to offset the declining U.S. business during strong dollar cycles, since more European tourists may go to the Disney park in France during those periods. Overall, we may say that Disney may be less exposed to exchange rate movements because of the park.