Sony Corporation’s Various Risk Management Tools
A net beneficiary of foreign currency from China and foreign trade other than the USD is Sony Corporation. In fact, the adjustments in exchange rates and enhancement of the USD have a negative impact on the company’s domestic sales profit and gross margin. Various exchange risks, such as investment risks and translation risks, are involved in international trade. A business also faces these risks. Thus, if the risks in the foreign exchange rates occur, it needs to adjust the local currency product price due to competition (XXX). Such foreign exchange risks, including forwarding and options contracts with financial institutes, are mitigated by Sony Corporation by using derivatives and options contracts that will protect the corporation against exchange rate volatility linked to assets and commitments, committed trade, and foreign market investment through subsidiary investments. By using derivatives to offset its exposure to foreign currencies partially, Sony Corporation is safeguarding most of its international content exposure.
As stated by XXX, the company signs contracts for foreign currencies and options for compensating some of its foreign exchange exposure to the company’s projected worldwide income, net international broker contributions, selling costs, and assets and liabilities. The overseas market branches of the organization with domestic and domestic currency operating in the exchange are covering a portion of the expected inventory acquisition that is not denominated in the local currency of the subsidiary companies. The business also uses hedging to cover gross margins from volatility by hedging projected foreign currency sales due to the change in the exchange rate. Sony Corporation also takes hedging as a precaution against adverse foreign-exchange-rate fluctuations to secure net investment in the international market. It mitigates the danger by entering into contracts futures in foreign currency to cover any adjustments in investment amounts that may be made as a result of shifts in the exchange rate by reducing the value of the foreign investment. By revaluing the assets and liabilities of the company, it is also exposed more to economic risks. So, for example, in order to enter foreign currency, Sony Corporation employs derivative hedging. It also uses forward contracts to partly account for exchange losses or profits from the foreign currency by calculating the assets and the liabilities.
Conclusion
In wrapping up, Sony Corporation has a tough time doing business in China, one of its overseas markets, because of the heavy competition from local firms and other enterprises. Besides, the Chinese government, particularly for technology companies which it considers risky, has put severe barriers. However, persistent fluctuation in exchange rates raises the company’s financial risks for foreign-market trading. The company uses derivatives to counter these risks in order to minimize these risks. The business is trying to show that the Chinese market will break through over time through the introduction of new and compelling electronic products, despite the uncertainties in China’s external market.