Thursday, April 4, 2013

Tiffany & Co. - 1993

Due to the fluctuations of yen/ clam permute rate, the new distribution promise with Mitsukoshi gave rise to high exchange-rate exposure for Tiffany to bear. The exposure goes in the spare-time activity two ways:

        Economic Exposures. From 1983 to 1993, the yen/ dollar sign exchange rate was along a down turn pathway (see Exhibit 1). In the past, Tiffany wholesaled its products to Mitsukoshi. Since the wholesale transactions were denominated entirely in dollars, yen/dollar exchange rate fluctuations did not jibe a source of volatility for Tiffanys expected cash flows. under(a) the new agreement, Tiffany has to bear the risk of any exchange-rate fluctuations that will channelize place when it assumes the responsibility for establishing yen retail prices, holding memorial in Japan for sale, managing and funding local advertising and packaging programs, and controlling local Japanese write outment.

        Translation exposure. Since Tiffany-Japan is a tout ensemble owned subsidiary of Tiffany, as a public company, Tiffany has to consolidate financial report of its Japanese branch. So, an unanticipated change in yen/dollar exchange rate will center the company overall financial performance.

Since Japans sales in 1991and 1992 accounted for 23% and 15% of the net sales of Tiffany along with the long-run emersion potential of Japanese sales, the above two sorts of risks could be loathsome in the case of an unexpected change of yen/dollar exchange rate.

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For example, when an unanticipated 10% rise of yen against dollar exchange rate comes, Tiffany will probably reconsider the grand budgets in dollar term of Japanese advertising and advancement programs.

Considering the potential harms brought by yen/dollar exchange-rate exposures, Tiffany should actively manage the risk. Despite the huge market potential for Tiffanys jewelry in Japan, Japanese consumers became more cautious in their spending as the Japanese economy slowed down, resulting in a slumped demand for Tiffanys prodigality items. And in the $20...

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