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Hallgarten Wines

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Hallgarten Wines

Case 4

Introduction

Peter Hallgarten is grandson of Arthur Hallgarten, the establisher of Hallgarten Wines Limited. Peter currently runs the wine importer and is continuously occupied with securing his purchases of foreign wines. As a wine importer it is not hard to imagine that the investments are subject to a lot of exchange rate risk, something that has to be dealt with. In this paper the operational financial strategy of Hallgarten Wines Limited is revised and recommendations are made.

Case questions

Comment on Peter Hallgarten´s approach to managing the exchange risks and other international financial risks encountered by Hallgarten Wines.

Since Hallgarten Wines is a wine importer and has no production of wines of itself, it is highly dependent on foreign suppliers. This explains the high exposure to exchange rate risk that Hallgarten Wines endures. Peter has dealt with this problem by diversifying away from German wines (which composed the major share of Hallgarten´s sales) into Portuguese, Israeli and English wines. Another problem that Hallgarten Wines faces is that it cannot pass down unexpected price changes onto its customers. Its customers or trade buyers, like restaurant owners, fix their prices according to their expected wholesale costs. So if Hallgarten pays more for the wines than expected, it has to make up for this difference in price by itself. Not selling this wine is not an option because goodwill needs to be fostered. These two factors make the risk of changes in exchange rates even more harmful, a depreciation of the Sterling versus eg. the Deutsche Mark would significantly harm the profits of Hallgarten. Standard practices in the wine industry have also their contribution to the risk Hallgarten endures. One is that wine transactions are dominated in the currency of the exporting country,

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