Jaguar Case Essay

6352 Words26 Pages
Questions 1 Jaguar Cars Ltd is a British luxury car manufacturer, headquartered in Coventry, England. Its production is primarily located in and around Coventry. In April 1980, Mr. John Egan, the managing director of Jaguar cars, implemented a few changes; one of the changes was to increase its exports, primarily to the US. Three years after, 74% of its production was exported, primarily to the US. However, exporting Jaguar Cars to the US will automatically put Jaguar Cars Ltd into a position where it will face a significant currency exposure to the US dollar. Meanwhile, Jaguar Cars also exports cars to West Germany, but it has only 2 % market share. Thus, even though Jaguar also faces a currency risk with the Deutsche Mark (since this case is prior to 2000, euro has not been created), it is less significant than the currency exposure Jaguar faces with the US dollar. So we will mainly discuss the currency exposure in the US market. There are three types of currency exposures Jaguar faces: transaction exposure, translation exposure and operating exposure. Transaction exposure arises from entering in a fix price contract denominated in foreign currency. Not all of the manufactured parts were produced in England; certain parts were imported. For example, gearboxes were produced by General Motors in the US and various other components were produced by West German suppliers. Since Jaguar exports its cars internationally, particularly in the US, it will also face translation exposure. Translation exposure refers to the potential that the firm’s consolidated financial statements can be affected by changes in exchange rates. Revenue generated from selling cars in the US will be based on US dollars. Thus, when Jaguar consolidates its financial statements, it will need to convert US dollars into Sterling to keep the currency consistent. A change in the currency
Open Document