Exchange rates and business

[viciam]

Hi all,

I'm just trying to understand how exchange rates effect a company.

I have this example for a company based in Canada

"Sales of our products are routinely denominated in US dollars while production costs are largely
denominated in Canadian dollars."

If I was the owner of this business, what would I want the USD/CAD exchange rate to be? USD higher and CAD lower? Or CAD higher and USD lower?

Many thanks in advance

 

[cynic]

A little over a decade ago, I was interviewed for a position in an Australian company faced with a similar dilemma. In order to manage the business and limit FX risk this company would, at the beginning of each year, hedge their estimated exposure. This enabled them to perform their primary business functions without having to be overly concerned with currency fluctuations.

I know it's not a direct answer to your question, but I think you'd need to know whether the company in question has similar practices in place, before making any assessment with respect to FX fluctuations.

 

[tech/a]

Higher USD product looks cheaper v CAD so increased sales
Lower CAD production costs lower, income in higher USD
Means more profit to run the business.

 

[viciam]

Hi Cynic and tech/a,

Thanks for the feedback, they do indeed hedge against exchange rates.

I'm guessing having CAD higher than USD would be better for the company being based in Canada right?