How Do Hyundai and Kia Use Exchange Rates in Their Daily Activities? How Did the Weak Dollar Affect the Profits of the Two Companies Between 2005 and 2007?

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Question 1: How do Hyundai and Kia use exchange rates in their daily activities? How did the weak dollar affect the profits of the two companies between 2005 and 2007? First of all, we have to define the meaning of exchange rate. An exchange rate is simply the rate at which one currency is converted into another. In the opening case, Hyundai and its affiliate Kia are the fast-growing carmakers in Korea because they have benefited from export-led growth. Hyundai sells 60 percent and Kia 80 percent of production in foreign markets, particularly the United States, where they have been gaining share recently. Hyundai and Kia use the foreign exchange market to convert the dollars it earns from selling cars in the United States into Korean won. Therefore, facing by the strong dollar against the weak won, Hyundai and Kia can price their cars below the prices of both domestic firms and the major Japanese companies, such as Toyota and Honda in the United States and European Union. Hyundai and Kia can use this low-price strategy to increase the foreign sales and earn the profit. However, Hyundai and Kia are easily affected by the changes in the value of the Korean currency, the won, against the U.S. dollar. In late 2005, $1=₩1050. In 2006, the won rose in value by about 7 percent against the U.S. dollar. It continued to appreciate throughout the first nine months of 2007, hitting a 10-year high against the dollar in October 2007. By late 2007, it is recorded as $1=₩918 only. The dollar had fallen in value against the won, making Hyundai and Kia vehicles, more expensive in the United States. This means that vehicles sold in the U.S. for dollars are recorded at a lower value when translated back into won, which has hurt the financial performance of both companies. For Hyundai, the annual net profit of the company in 2005 was about ₩2349billion, but in 2006, despite

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