Caterpillar is one of the Americas major exporters. The company sells its construction equipment, mining, equipment and engines to some 200 contries. Discuss the following questions briefly 1.In the 1980s a stronger dollar hurt Caterpillars competitive position, but in 2008 a stronger dollar did not seem to have the same effect. What had changed? 2. How did Caterpillar use strategy as a \"real hudge\" to reduce its exposure to foreign exchange risk? What is the downside of its its approach? 3. Explain the difference between transaction exposure and translation exposure using the material in the Caterpillar case to illustrate your answer. Solution 1.In the 1980s a stronger dollar hurt Caterpillars competitive position, but in 2008 a stronger dollar did not seem to have the same effect. What had changed? Confidence in US Assets: The dollar started to strengthen again in 2008, foreing investment in US assests was strong, Treasury bills was safe haven in economic stom Deal with Unions: in the 80´s : employee layoffs and striks, outsourcing parts of production . Mid 2000s: reached deal with union, increase of productivity. Change in company structure: Centralized to decentralized, own pricing decisions, own product desings, improved quality and efficiency Improvement in product technology & energy efficiency. 2. How did Caterpillar use strategy as a \"real hudge\" to reduce its exposure to foreign exchange risk? What is the downside of its its approach? Caterpillar´s global foot print: \"From Calgary to Cairo and from Sydney to Salt Lake city Caterpillar operates hundreds of offices and facilitites across the world. Caterpillar´s global presence, product breadth and financial strenght enable us wo tin in today´s competitive market place. Forward Exchange: When 2 parties agree to exchange and execute the deal at some specific date in the future. Downside of its approach: Currency´s value is determinated by market force, government intervention as well as demand and supply of currency: Globalisation: More competition within the global market that have adopted globalisation Forward Exchange: Based on future expectation of the foreign exchange market 3. Explain the difference between transaction exposure and translation exposure using the material in the Caterpillar case to illustrate your answer. Transaction Exposure: The extent to which income from invididual transactions is affected by fluctuation in foreign exchange valus 1980´s Us dollar strenfthens Foreign payable to Caterpillar become more expensive Loss of foreign sales = reduced revenues + Limited means of managing transaction exposure = Massive reduction in future cash flows Translation Exposure: The extent to which consolidated financial results of a corporation are affected by movements in exchange rates.

1. Caterpillar is one of the Americas major exporters. The company sells its construction
equipment, mining, equipment and engines to some 200 contries.
Discuss the following questions briefly
1.In the 1980s a stronger dollar hurt Caterpillars competitive position, but in 2008 a stronger
dollar did not seem to have the same effect. What had changed?
2. How did Caterpillar use strategy as a "real hudge" to reduce its exposure to foreign exchange
risk? What is the downside of its its approach?
3. Explain the difference between transaction exposure and translation exposure using the
material in the Caterpillar case to illustrate your answer.
Solution
1.In the 1980s a stronger dollar hurt Caterpillars competitive position, but in 2008 a stronger
dollar did not seem to have the same effect. What had changed?
Confidence in US Assets: The dollar started to strengthen again in 2008, foreing investment in
US assests was strong, Treasury bills was safe haven in economic stom
Deal with Unions: in the 80´s : employee layoffs and striks, outsourcing parts of production .
Mid 2000s: reached deal with union, increase of productivity.
Change in company structure: Centralized to decentralized, own pricing decisions, own product
desings, improved quality and efficiency
Improvement in product technology & energy efficiency.
2. How did Caterpillar use strategy as a "real hudge" to reduce its exposure to foreign exchange
risk? What is the downside of its its approach?
Caterpillar´s global foot print: "From Calgary to Cairo and from Sydney to Salt Lake city
Caterpillar operates hundreds of offices and facilitites across the world. Caterpillar´s global
presence, product breadth and financial strenght enable us wo tin in today´s competitive market
place.
Forward Exchange: When 2 parties agree to exchange and execute the deal at some specific date
in the future.
Downside of its approach:
Currency´s value is determinated by market force, government intervention as well as demand
and supply of currency:
Globalisation: More competition within the global market that have adopted globalisation
Forward Exchange: Based on future expectation of the foreign exchange market
3. Explain the difference between transaction exposure and translation exposure using the

2. material in the Caterpillar case to illustrate your answer.
Transaction Exposure: The extent to which income from invididual transactions is affected by
fluctuation in foreign exchange valus
1980´s
Us dollar strenfthens
Foreign payable to Caterpillar become more expensive
Loss of foreign sales = reduced revenues + Limited means of managing transaction exposure =
Massive reduction in future cash flows
Translation Exposure: The extent to which consolidated financial results of a corporation are
affected by movements in exchange rates