Does any currency exchange rate risk exist?
Axetem’s branch office in the Middle East region was temporarily shut down a couple of years ago because of growing concerns for employee security and an unstable economic environment. Axetem’s branch office is located in a four-story building near the downtown area. Axetem has been renting its office headquarters at a cost of $4,000 per month based on a 5-year lease. Since its temporary shutdown, the company has continued to make its lease payments. The building is still in very good shape, and the office can be reopened almost immediately. Additionally, because of the current shortages, and to stimulate business in the country, the government is willing to negotiate a substantial government contract with Axetem, Inc. to supply training shoes to its police and military academies. This contract is worth approximately $5 million over the next 3 years if the company agrees to reopen this foreign branch office and employ local residents.
Sarah McNote, Axetem’s foreign operations vice president, has set up an electronic bulletin board on Axetem’s intranet in an attempt to seek input from employees on whether a reinvestment in this foreign office is desirable or profitable at this time.
Should multinational companies always stay out of places with civil violence, or should profit potentials be carefully evaluated?
Does any currency exchange rate risk exist? Why?
What are 2 potential financial risks of Axetem reestablishing operations in the Middle East with regard to currency exchange?
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Axetem International, Inc. is a successful, Washington-based, public company and a manufacturer of various high-quality running and cross-training athletic shoes.
In addition to its national wholesale operation, Axetem, Inc. also maintains several satellite wholesale branch offices outside of the United States. These include office locations in Canada, France, the United Kingdom, and a currently nonoperational office in the Middle East.
Assume that you are a foreign business operations analyst for Axetem, Inc. Your job responsibilities include not only various business analyses but also the task of cross-training various employees in matters relating to Axetem’s foreign operations.
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