The problem of the exchange rate differences between different currencies is the special issue to be defined in the process of estimation of the company real value. The interrelation dollar-sterling equals approximately 1.5 % as for the 1983 year. This correlation means that the pound sterling is devaluated currency comparing to dollar. The worth of the pound sterling is higher than that of the dollar.
It is well-known fact that the stronger is the currency the more profitable are the investments made in this currency. From this only statement and the dollar/pound correlation we may make the conclusion that the US investors are more protected from the negative outcomes of the devaluation than the UK investors.
The exposure of the Jaguar to the currency correlation may be described as following. If the manufacturing facilities are situated in the USA it is slightly inefficient way of to make investments in the pounds of sterling as the pound sterling is cheaper. From the other hand, the financial injections made by US investors to the company facilities situated in the UK. Such effect is invoked by the fact that the resources such as labour are bought in the national currency.
Furthermore it is also important to mention the role of such exposure in context of the transferring prices. The Jaguar is the transnational corporation that is why it may optimize the rate correlation by different means. We will omit excessive details in order to follow the given instructions, nevertheless it is necessary to consider the nature of this company and analyze its particular features before considering its exposure.
The desire of transnational companies to receive cash loans or loans where interest rate are the lowest is not always advisable, because the difference in rates is often compensated in the money markets foreign exchange rate changes. Bearing in mind cash amounts, the parent company aims to make the change the currency of subsidiaries into the currency of the parent company when the course is most favorable and, hence, it is possible to get the greatest benefit. But it should be noted that countries with a weak currency often conduct currency regulation, hindering optimal management of the movement of funds. Finally, changes in exchange rates can also affect the calculation of income.
Another aspect of the question is to understand whether the price of the product manufactured by the company depends on the currency vulnerability. In case it is and the company is to make the purchases in pound sterling, the transactions will be absolutely beneficial for the US-dated investors. If some details need to be bought in dollars, the profits for the UK dated investors were to decrease. At the same time, it is absolutely clear that the company makes purchases in both currencies due to its organizational structure.
The exposure for the dollar-based investors is not as significant as for the sterling-based one due to the facts mentioned above. It is usually better to get profits in the stronger currency. Nevertheless sometimes the devaluation also has its positive outcomes but in the other context. The real profits of the US investors are higher than for the UK investors financing the pounds of sterling.
It is important to pay attention to the graphic which shows that the level of currency devaluation of the pound sterling decreases. From this point of view it is possible on the bases of the presented data to anticipate the further growth of the profitability of the pound-based investors.
It is also important that the difference between two currencies is not really significant, so there is no reason for changing of the currency structure of investments to be made. The margin is not really significant for the Jaguar company investors.
Conclusions
As the result of the current research we determined the influence of the dollar-pound correlation on the UK-based and US-based profits of the investors. The stated questions were answered to.
References
Rimman, D. (2014). Exchange rates in the evaluation. London: LNB.
Rossi, L. a. (n.d.). Evaluation: A Systematic Approach.
