Best Buy enters India
Professor Hamid Assar
International Finance – FIN535
May 22, 2012
Best Buy Co., Inc. is an American specialty retailer of consumer electronics in the United States, accounting for 19% of the market. It also operates in Puerto Rico, Mexico, Canada and China. The company's subsidiaries include Geek Squad, CinemaNow, Magnolia Audio Video, Pacific Sales, and, in Canada operates under both the Best Buy and Future Shop label.
Together these operate more than 1,150 stores domestically and internationally. In addition, the company operates over 100 Best Buy Express Automated Retail stores or "ZoomShops", ...view middle of the document...
As of January 2009, Best Buy operated five "branded" stores in Shanghai, one "premium" store in Beijing, as well as 151 Five Star Appliance Stores in China.
Track the currency exchange rate for the past 24 months, explain what has occurred, and identify the economic variables that have most influenced these exchange rate movements.
Here we have a graph about the Indian Rupee exchange rate in the last two years. Since August 1 2011, the Indian rupee has lost roughly 20 percent of its value relative to the U.S. dollar.
While large Indian traders of bulk commodities generally hedge against exchange-rate risk, smaller traders as a rule do not, preferring to bear this risk themselves. As a result, commodities traded primarily by small and medium traders are entering an import slump. The rupee’s fall may have been arrested by a modest intervention coupled with indirect controls imposed by the Reserve Bank of India.
The Indian rupee hit a fresh all-time low against the dollar Wednesday, as risk adverse global investors wary of India's twin deficits drowned out central bank efforts to stem the currency's slide.
The rupee hit 54.44 against the dollar, breaching its prior low of 54.39 set Dec. 15, according to FactSet data. The slide helped send the benchmark Sensex index down 1.8 per cent Wednesday. Analysts said they expect the rupee to soften further, breaking 55 to the dollar, as Eurozone jitters dovetail with growing worries about India's slowing growth and current account and fiscal deficits.
The Reserve Bank of India sold about $20 billion between September and March to prop up the rupee, but India's falling foreign exchange reserves limit the bank's ability to intervene decisively.
Analyze the exchange rate risks associated with transaction, economic, and translation exposure in the Indian market. Then, based on the tracking and your analysis, anticipate what fluctuations seem likely to occur in the next 24 months.
India's balance of payments (BOP) depends critically on remittances, services exports (forming part of invisibles) and of course capital flows, both FII and foreign direct investment (FDI). Yet, it is essential that all market participants, including banks and other intermediaries, be provided the wherewithal to undertake forex risk management in a scientific way.
The basic principle for accessing domestic foreign exchange markets is hedging of underlying foreign exchange exposures.
To the facilities traditionally available such as booking of forward contracts, newer ones were added as the domestic forex markets evolved and acquired depth and volumes. Newer hedging instruments have included swaps and options in addition to the foreign exchange forwards.
However, to a very large extent hedging was permitted only against `crystalized' foreign currency exposures. In layman's language it means that only where there is an underlying forex risk arising out of a `genuine'...