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Question 464 - CSCP discussion

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Which of the following risks does currency fluctuation pose if a company is operating globally?

A.
It creates a requirement for additional inventory.
Answers
A.
It creates a requirement for additional inventory.
B.
It impacts supplier performance due to frequent replenishment.
Answers
B.
It impacts supplier performance due to frequent replenishment.
C.
It requires compensation to local governments.
Answers
C.
It requires compensation to local governments.
D.
It changes the relative profit expected from the sales.
Answers
D.
It changes the relative profit expected from the sales.
Suggested answer: D

Explanation:

Currency fluctuations impact the relative profit expected from sales by affecting the value of revenues and costs in different currencies. When a company's operating in multiple countries, changes in exchange rates can lead to variations in profitability. For example, a strong local currency can reduce the competitiveness of exports by making them more expensive for foreign buyers, while a weak local currency can increase profit margins on foreign sales. Effective currency risk management is essential to mitigate these impacts.

Reference:

'Managing Currency Risk in Global Supply Chains,' Deloitte.

'The Effects of Exchange Rate Fluctuations on Global Supply Chains,' Journal of International Business Studies.

asked 16/09/2024
Richard Villanueva
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