Question

Should Japanese companies such as Nintendo and Toyota with business in Mexico have hedged against adverse changes in the peso/yen exchange rate?

Answer 1

Solution and Explanation:

These companies with the businesses in Mexico are not affected due to the adverse exchange rates and have nullified it, because they have their operations in the neighboring nations such as Canada and USA. Here, These companies do not use Yen as a currency for the exchange and since Mexico has NAFTA agreement with the USA and Canada, then these companies take the benefits of the duty free trade. Hence, a superior quality, scale of production and savings in duty and tariff, will make them get better off and nullify the impact of the exchange rate.

So, these companies have done it with the help of use of local currency and the US dollar as exchange currencies, and benefit of free trade with the member nations of NAFTA. These companies can also export the goods to those nations such as Brazil, Argentina to cater the demand in these nations. Here also, Yen will not be used.