- 10 Marks
BMIS – L1 – QC1 – The external environment
Explain the meaning of 'currency risk' as stated by the president of a car manufacturing company.
Question
The president of a Japanese car manufacturing company, TCM, recently stated that his suit would not expand its production capacity any further at its factory in Nigeria. This factory produces TCM cars for the African market with sales agreed in the local currency of the target market.
The president explained that the reason for this decision was the currency risk. The company was concerned about its competitiveness in the African market. It had a 5% share of the Nigeria cars market, but only a 1% share of the market in the rest of Africa.
Required
Explain what the company president meant by the term ‘currency risk’
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