Economics Homework Help

ABA Group Cars, owner of the Lao and Pack brands, has been based in Barcelona since its founding in 1916. But by 2019, only 17 per cent of the cars it sold were bought in Spain. In recent years, China has become ABA’s fastest-growing market, accounting for 14 per cent of ABA’s global sales volume in 2019. India, Russia and eastern Europe have also become key markets. Despite rising sales revenues, ABA was conscious that its profits were often severely eroded by changes in exchange rates. The company’s own calculations in its annual reports suggest that the negative effect of exchange rates totalled €1.1bn between 2005 and 2019.

ABA did not want to pass on its exchange rate costs to consumers through price increases. Its rival KARS had done this at the end of the 2018s in the US and sales had plunged.

1- What approaches could ABA take to manage its exposure to foreign exchange? Explain the implications of each approach for the Company. (33 points)

2-If the company decided to transfer its production to foreign markets, what pros and cons would it have? (33 points)

3- The CFO of ABA wants to know the evolution of the euro / dollar exchange rate since the appearance of the euro in 2001. In this sense, what has been the annual percentage change in the euro-dollar exchange rate for each year since the introduction of the euro? Include some picture evolution. Use only official sources for this. (33 points)