Question

Ford Motor Company exports cars to Italy. However, the strong dollar against the euro hurts sales of Ford cars in Italy. In the Italian market, Ford faces competition from the Italian and French car makers, such as Fiat and Renault, whose operating currencies are the euro. What kind of measures would you recommend so that Ford can maintain its market share in Italy? Give at least two measures. [Hint: think of how to reduce forex exposure]

Answer 1

Ford motors can be taking appropriate hedging techniques in order to protect itself from depreciation of the euros against Dollars.

The two measures would be-

(A) to establish a subsidiary in the Italy that will help in in gaining through the exchange rate of the depreciation of the euros against Dollars

(B) it can also be entering into purchase contracts with the manufacturers in the Italy so its cost will also be included in the Italy and its benefits will also be incoming in the Italian Euros, so there would be a perfect risk management of same exposure in same currency.