The following case study corresponds to an analysis of the known facts going around the Swiss Franc and the effects it has from the point of view of investors, managers, employees, manufacturers and tourists. In order to show this breakdown, the next set of questions will be answered accordingly.
- Why is the Swiss Franc a “haven currency” according to many international investors?
For international investors, the Swiss Franc represents a “haven currency”, thanks to its ability to protect capital and revenues since it keeps strong even from events causing devaluation of other global currencies such as the US dollar or Euro (Peng, 2013, p. 229). No wonder why Switzerland has gained the status of a place for international settlements, investing or simply saving money for individuals, corporations and specially governments (Sprout Money, 2014).
- Why have the unfavorable foreign exchange movements made the Swiss Franc a “currency from hell” according to a lot of Swiss firms’ managers and employees?
For those firms who have a lot of Swiss-franc costs, and revenues coming from the Euro zone or other markets, the Swiss Franc embodies many difficulties derived from the unfavorable changes on currencies. When the Swiss-Franc appreciates, these types of companies have to face great generalized losses due to negative currency exchange movements. On the other hand, most of these companies find themselves in the necessity of cutting down wages to reduce costs accordingly with the exchange rates and keep their businesses running, nevertheless, as a consequence, workers’ unions protest stating that is the company owners who should deal with the vulnerabilities produced by the variation of these rates (Peng, 2013, p. 229).
- If you were a CEO of a medium-sized manufacturer in Switzerland, what are the options you may consider in response to the spike of the Swiss Franc?
The decision would depend on where our revenues as a company are located. If our revenues come mainly from the Swiss market, which means in Swiss currency, the movement to make is to try to keep our Swiss costs to a minimum in order to take advantage of currency peaks. This would include keeping only wages and factory expenses in Switzerland, and rather than buying production materials in Swiss Francs, we would evaluate obtaining them from nearby sources in the Euro zone while the spike lasts to optimize costs of production. If, on the contrary, most of our income were obtained in other currencies such as the Euro or the US Dollar, we would definitely move our operations out of Switzerland to cut down Swiss-based costs even more. Though this would imply reducing manufacturing-related jobs in Switzerland and would lead to more unemployment, it would also represent a strong reduction of costs, and along with this, we could benefit from manufacturing outside and exporting to the Swiss market whenever is possible, which would also give us the chance of saving funds in a stronger currency and exchange them during the spikes to obtain more cash revenues.
- As a tourist looking to have a vacation in Europe, you are very interested in Switzerland, but you are concerned about the high prices. What other European countries would you consider?
This decision would definitely depend on the conditions I have for the trip (available budget, desired locations, willingness to save on accommodation and so on). If money is a problem and I look forward to save as much as I can while being in Europe, I would consider other countries and cities where inflation stays stably low like Spain, Portugal or Austria, and even those out of the Euro zone to take more advantage of exchange rates, such as Eastern European countries that have proved to be less expensive such as Czech Republic, Lithuania, Hungary, Latvia, among others (Papworth, 2013).
References List
Peng, M. (2013). Global Business, 3rd Edition. Dallas, TX: Cengage Learning.
Sprout Money (2014, November 26). The Real Reason Why The Swiss National Bank Hates The Gold Referendum. Zero Hedge. Retrieved from http://www.zerohedge.com/news/2014-11-26/real-reason-why-swiss-national-bank-hates-gold-referendum
Papworth, J. (2013, January 18). Low-cost holiday destinations in 2013. The Guardian. Retrieved from http://www.theguardian.com/money/2013/jan/18/low-cost-holiday-destinations-2013
