Question

Airbus and the Euro Summary This feature describes how Airbus is protecting itself from exchange rate fluctuations. French aircraft maker Airbus prices its planes in dollars. However, because over half the company’s costs are in euros, the company has the potential to see significant fluctuations in its earnings if it does not hedge its foreign exchange exposure. The following questions can help in the discussion of the feature.

a) What type of foreign exchange exposure does Airbus face? How can Airbus protect itself from its exposure to changing exchange rates? How does the company’s switch to more U.S. suppliers help the company?

b) Airbus has asked its European-based suppliers to start pricing in U.S. dollars. What does Airbus hope to gain by this request? What does it mean for suppliers?

Answer 1

Answer A: Airbus is facing the transaction Exposure. To protect itself, Airbus should hedge its transaction exposure using Forward contracts in the foreign exchange markets.

Switching to US suppliers can help the Company in reducing the economic exposure risk. It also helps in reducing the costs by shifting to American suppliers and asking European suppliers to price in Dollars

Answer B:It is an effort by Airbus to reduce the exchange rate risk.

By dealing in less number of  currencies,It helps the Airbus in consolidating all of its transactions and in turn also helps them in easily managing their exposure through hedging.

For American Suppliers this shift is beneficial as it removes exchange rate risk for them but on the other hand for European suppliers it introduces exchange rate risk for them.