In terms of risk management, the impact of foreign exchange rate fluctuations is certainly highly substantial because unanticipated changes in exchange rate may have a detrimental impact on a company’s financial position, even if it is competing in a domestic market (Jorion, 2007). In Porsche’s case, it has to be highly agile and aware of its business transactions within Europe as exchange rate fluctuate on a regular basis and this can have a significant impact on the company’s operations if the Euro strengthens or weakens in value.
Porsche is exposed to exchange rate fluctuations and to mitigate such risks it has to adapt a forecasting technique which can help the company to foresee any future risks which can have an impact on its business operations. However, to monitor such changes, it is important for Porsche to monitor risks along with business planning purposes. Considering the nature of Porsche business in USA, the anticipated exchange rate changes can be caused by a major input related to almost all decisions of the company related to its business transactions. However, to gain an adequate level of profitability, the core task of evaluating and forecasting future foreign exchange rates for the purpose of planning and decision-making, is certainly very different when trying to gain speculative profits.
It is evident that for Porsche, optimum management of its corporate as well as foreign exchange exposure is a very important and a highly legitimate concern. A great cause of concern for Porsche is that the transaction costs are very high specifically for individual investors who can invest in a firm like Porsche. According to Christoffersen (2011), for a company to be sustainable in the long run, it has to mitigate or eliminate all foreseeable risks which can have an impact on its business operations.