Monsano Essay

617 WordsApr 10, 20133 Pages
Clinical Paper –Financial Risk Management at Merck Merck, a US pharmaceutical company, has a significant presence overseas. Over 40% of their assets are abroad and approximately half of their sales are international. Note, when conducting international business, that Merck uses the local currency of the country. This means that there needs to be a strong foreign currency as opposed to a strong US dollar in order for Merck to show a profit. In the early 1980’s, Merck designed a sales index that measured the strength of the US dollar versus foreign currencies that showed a decline to 60 (an index scale greater than 100 leans towards strong foreign currencies), which resulted in a loss of US $900 million for Merck. To identify and mitigate the foreign exchange risks that were essentially contributing factors of such a huge loss of revenues became paramount to Merck. The key risk was identified as foreign exchange risk, with an underlying emphasis in net asset and revenue exposures. The identification was discovered after reviewing the three main reasons why foreign exchange risks can affect a US company both economically & monetarily: * By changing the dollar value of net assets held overseas in foreign currencies (known as translation exposures) or by changing the expected results of transactions in non-local currencies (transaction exposures) * By changing the dollar value of future revenues expected to be earned overseas in foreign currencies (future revenue exposure) * By changing a company’s competitive position (competitive exposure) 1 Identifying the key risk and the underlying exposures leads to a more thorough knowledge of said risk. Analysis revealed that there is the likelihood that “revenue and cash flow exposures can become volatile, which could then impair the Merck’s ability to execute its strategic plan for growth.”2 In

More about Monsano Essay

Open Document