International Market Expansion Essay Example | Topics and Well Written Essays - 1500 words

International Market Expansion - Essay Example Consider if the return in Vietnam pillories is 10% of the total investment but on the other hand if currency that is Vietnam’s dong depreciates also by 10% then the gain to corporation will be nothing, with the same token if currency depreciates by more than 10% the Pfizer pharmaceutical will face loss and if their currency appreciates by 10% or more the Pfizer pharmaceutical can also yield abnormal profit. So, there exists a risk of foreign currency in case of business exposure to Vietnam. Though currency risk prevails in business exposure but companies can overcome this currency risk and can protect their profit even in crisis too. Following are some of the possible risk aversion strategies for business expansion. The first and foremost solution is to actually measure the volume of risk through analysing the company’s exchange flows. In the exchange process when currency transaction takes place it is advised to negotiate payment of currency in your own local currency in this case that is US dollar. Trading in your local currency will reduce the risk of conversion rates in the form of exchange rate shocks besides the expected fluctuations will be bore by the other party while your returns will not be affected by this risk. When companies are experiencing foreign exposure they should keep an eye on the changing currency rates and whenever possible they should take optimum advantage of the current rate. In reducing currency exchange rates, companies should keep dates for payments close to the signing of the contract date, this will reduce risk of fluctuations. Keeping certain amount of deposits as security with a defined ratio of contract size can also help minimizing risks. With the help of brokers and foreign exchange solutions companies can lock in future exchange rates and buy contracts with future perceptions but there is no exact solution to the failure of this future exchange rate so, instead of open period, short period for bid and contract s will limit the risk of currency exposure. Companies should double check foreign exchange rates when they are setting up prices because selling product in a foreign country mean payments will be collected in foreign currency, but if the exchange rate is low with lower prices the company will end up in loss. So, setting up prices is also a key factor in reducing loss.(Prinzel, 2012) The solution can also be to diversify the exchange rate which will also reduce risks. Since Pfizer pharmaceuticals has its business exposures in almost 42 countries, this diversification can help reducing currency exchange risks as if Vietnami dong depreciates, exchange rate in other country may appreciate so, Pfizer pharmaceutical already entails this solution which will further help reducing risks. Pfizer can also neutralize its risks through managing its dealings as currency in Vietnam depreciates, it will help if Pfizer purchase its raw material from foreign supplier who are dealing in Vietnami dong that will make product cheaper as payment is made in dollars. On the other hand it will neutralize the risk of foreign currency exposure too.(Alan C. Shapiro, 1982) 2. Evaluate the basic functions of the international banking system and