Response to question

In responding to your classmates, share your opinion about the companyâ??s hedging strategy. Offer them suggestions based on what other types of hedging the company might use to fit its product/industry to its risk.I upload the response and you just need to give comment about it. The word should be around 50-100.

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The company I have chosen is Philips, more specifically Royal Philips in the medical equipment industry
and looking to further expand and develop themselves in the Chinese market. China recently has
updated/amended its healthcare policies in the medical equipment and innovative drugs department which
provides Philips a great opportunity to grow the company (Fisher & Xiao, 2018). Philips is well known
and established in the lighting industry and operates in over 100 countries exposing the compa ny to risks
from the fluctuations of exchange rates when it comes to dealing with foreign currencies against the Euro
(Philips, 2016).
Due to the numerous countries Philips operates in and having to deal with various foreign
currencies, Philips is exposed to several currency risks. According to Philips the currency risks
includetransaction exposures and translation exposure related risks involving foreign external debts, net
incomes, and foreign currency denominated equity etc. (Philips, 2016). Philips uses forwards and
currency options when it comes to hedging their exposures. It is the companyâ??s policy to have foreign
currency exposures to be fully hedged mostly using forwards (Philips, 2016). With that being said, there
are also exceptions since the company may face some barriers. Some of the foreign currency that Philips
handles cannot be hedged due to regulatory barriers or prohibitive hedging costs that essentially will not
allow Philips to effectively/efficiently hedge its currency exposures (Philips, 2016). In addition to the
currency risks, Philips also hedges other financial related risk like commodity price risks by using
derivatives (Philips, 2016).
I think Philips is doing a good job hedging its risks. When a company operates in more than one
currency, it is inevitable that the company will be exposed to foreign exchange rate risks. As for Philips,
hedging is important for the company to mitigate any exposure to financial risks. Hedging has been
incorporated into the company policy when it comes to reducing the volatility caused by the movement of
foreign currency.

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