US Multinationals Grapple With Soaring Dollar
Muhammad Irfan Published July 03, 2022 | 10:40 AM
New York, July 3 (UrduPoint / Pakistan Point News - 3rd Jul, 2022 ) :The rapid rise of the US Dollar since the start of the year is a double-edged sword for American multinational companies, pushing some of them to decide whether to hedge or reposition their activities abroad to avoid fallout.
For an importer, the surge in the greenback against the euro, Yen or British pound is a plus, because it makes the products they buy cheaper.
But for a US export company, products sold in Dollars have become more expensive, which increases the risk of losing clients and seeing sales decline.
And they also lose money when converting foreign revenue back into to dollars.
Many firms already revised their earnings forecasts for the year to account for the changing exchange rate, including computing giant microsoft, which warned its quarterly sales will fall by $460 million and its net profit by $250 million due to the Currency hit.
Adobe, Salesforce, Biogen and Pfizer have all warned that the dollar's rapid rise will have a greater impact on their accounts than expected.
- $40 billion hit - Companies that generate most of their revenue outside of the United States are the most exposed, starting with tech giants, medical equipment makers and service companies, according to Kyriba, a corporate cash management platform.
Kyriba estimates the currency effects could mean a $40 billion hit to earnings of S&P 500 firms in the first half of the year.
The Federal Reserve's decision to aggressively hike interest rates to combat rampant inflation, combined with an influx of funds into the country from investors looking for a safe haven in uncertain times, have combined to boost the US dollar.
The greenback has risen 13 percent compared to the euro over the last 12 months, approaching parity, and gained 22 percent against the yen.
"Short term, that's a good thing for the United States because it means all the imports are cheaper and it puts downward pressure on inflation," said Desmond Lachman of the American Enterprise Institute think tank.
But further out, the effect on the US economy is more nuanced, because if exports fall, "the United States trade deficit widens and then we get more external debt." But multinationals "don't have control over these big items," he explained.
They can, however, mitigate the effect of fluctuations in foreign currencies in which they price and invoice goods by adopting hedging strategies -- using financial instruments that provide a kind of insurance against losses caused by the changing exchange rate.
Most corporations already have hedging programs in place, and they change their plans on a quarterly or even monthly basis, sometimes trying to predict currency movements, Kyriba's Bob Stark said.
But it's not an exact science, he noted, especially in a time of great uncertainty about the direction of inflation, interest rates and the possibility of a recession.
Related Topics
Recent Stories
2600 uplift projects near completion across South Punjab
Project Director SFERP for early completion of road work before forthcoming mons ..
Spain vows to block BBVA's hostile bid for rival bank
Bank of England holds rate at 16-year high, signals looming cut
London, Frankfurt hit record highs on rate-cut hopes
Entire road work completed before forthcoming monsoon: Kanasaro
Crespo-Kewell Champions League rivalry renewed in Asian final
Bank of England holds rate at 16-year high, signals looming cut
SBP injects Rs 393.75 billion into market
Rupee sheds 10 paisa against US dollar
Federal Ombudsman' regional office holds open court at Paharpur Tehsil
Technological advancements essential for driving country's development: Shaza
More Stories From Miscellaneous
-
Concerted efforts urged to ease traffic flow on city roads
4 days ago -
Land degradation: A threat to food security
4 days ago -
Revamping health sector, a gigantic task ahead
4 days ago -
American band promotes intercultural harmony thru music fusions
5 days ago -
Waste Management – A persistent challenge for MWMC
6 days ago -
Experts for ending child labour
8 days ago
-
Labour Day - A reminder for better facilities to workers
8 days ago -
Stage Drama Mohabati Manhoon presents in Arts council Larkana
11 days ago -
Wheat farmers in a fix on price, procurement mechanism
11 days ago -
Modern tools to help transform crime investigation procedures
11 days ago -
Sanam Marvi captivates audience with mesmerizing performance
12 days ago -
Modern Education Techniques: A pathway to achieve economic development
13 days ago