Case Study 3

1 - In 1980s, having a strong dollar was not in favor of Caterpillar’s revenue but it was benefit to them regarding their costs. As we can see, Caterpillar has decided to expend its foreign manufacturing bases in order to be able to still face the dollar but in other currencies. The thing that has changed is that by 2008, Caterpillar had an important part of its structure, 102 out of 237 facilities based out of the United States in countries like Brazil, China or India. The price they used to pay for inputs fell, the cost of process declined, and this even though the currencies were weak face to the dollar, but Caterpillar was still “winning”. So with all that, we can see that this globalization stately adopted has helped Caterpillar to reduce the impact of fluctuations in the value of the dollar.

2 - Globalization was used by Caterpillar as a “real hedge” strategy in order to face the fluctuation of the dollar. Caterpillar was still the major exporter, even with a big part of its facilities based outside of the United States. This has helped him to reduce its exposure to foreign exchange risk. The downside of this approach would be that the revenues gained in the other countries would suffer when changed to dollar.

3 - Transaction exposure is the extent to which fluctuations in foreign exchange values affect the income from individual transactions. Translation exposure is the impact of currency exchange rate on the reported financial statements of a company. Translation exposure is concerned with the present measurement of past events. In the Caterpillar case, we have an example of Translation exposure with the fact that the benefits of Caterpillar were suffering while changed to USD. And we have an example of transaction exposure with the fact that the fluctuations in dollar has been a determinant key to the globalization of