What Is Meant by the Term Foreign Exchange Risk and Explain and Illustrate Those Strategies

In this paper I intend to introduce the relevant options available to a multi-national enterprise when dealing with foreign exchange risk. I am going to use Toyota Motor Corporation throughout as an example. Toyota is the world's third largest automaker. It was established in Japan on August 28th 1937 and apart from its 12 plants in Japan, has 54 manufacturing companies in 27 countries, employs 246,700 people and markets vehicles in more than 160 countries. (Toyota website, 2004) Toyota is exposed to the fluctuation in foreign currency exchange as it operates mainly in America, Europe and Britain. It is therefore affected by the fluctuation in the value of the US dollar, the Euro and to a lesser extent the British pound. Toyota's consolidated financial statements, which are presented in the Japanese yen, are affected by the foreign exchange fluctuation, as all the amounts in the various countries' currencies have to be translated into yen.…