Starbucks and Foreign Exchange Rate Risk Essay Example | Topics and Well Written Essays - 500 words

Starbucks and Foreign Exchange Rate Risk - Essay ExampleDuring its first eld in the Philippines, one dollar is equivalent to fifty pesos. Thus, a cup of coffee has priced at slightly Php150. This pricing has b arely changed through the years.Starbucks have continuously opened stores in the country especially when the line of products processing industry boomed making specialty coffee shops really popular. Though the Philippine operation is adept small in comparison to the whole system of Starbucks in the world, it does contribute to the companys sales and profits. Since prices are denominated in Philippine pesos, the end of year revenues is converted into US dollar at the prevailing exchange step which has important implications for the company.During 2005, the Philippine peso has steadily depreciated reaching Php55/US$1 (BSP 2008). So, for instance, if Starbucks revenue is Ps5.5 million, it smoke be converted into $100,000 during the period. However, recently the currency has been strengthened through the continuous inflow of remittances from Filipinos working abroad who are supporting their families in the Philippines. Thus, the exchange come out appreciated to Php45/US$1 (BSP 2008). In this situation, the Php5.5 million income can now be converted into US$122,222 higher than when the peso is weaker.This illustration just summarizes the exchange rate risks faced by a multinational business organization in operating in opposite countr