Embraer's Specific Problem Is That Term Paper

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There are many different steps that Embraer could have taken; first they could have used a recurring currency conversion method to reduce their risk. Since the majority of their sales are happening through consistent customer return basis, they can hedge their risk by using recurring payments rather than allow the company to pay in lump sums when the exchange rates are the most favorable. If they use a constant stream of revenue strategy they would be changing their risk to a much more manageable level and they can shift their cost payments based upon their current market currency rate. Overall, this hedging strategy is to take the currency control position away from the buy-side client and putting it into neutral territory. When this happens they are least likely to always be in a position of currency exposure. The smartest way for Embraer to hedge their bets is to use a third party broker that will substantially change their risk factors. A third party currency broker could have assumed the entirety of the purchase and thus they would have been able to give the entirety of the amount to Embraer. Negotiating such a buy-side and sell-side agreement changes the way that Embraer would have viewed its financial position. They could also have changed their currency hedging away from U.S. dollars to real and towards more favorable exchange positions. The real's appreciation is most likely comparable to "major eight" currency players, and if they took on risk positions with other currencies they could no doubt find better positions that would eventually increase their overall equity position. Hedging using U.S. dollar conversion to real would probably been one of the worst methods for currency hedging because they take on a losing position from the outset.

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The only way that this would have been a smart strategy is if the real continues to appreciate at a very high level that would make them lose even more money down the line.

If they were not paid on net receivables of 608 million of 397 million, they would only maintain 82% of the real money value when they convert to a real figure that would have a net worth of 325 million in real value. However, since they have to convert this once again to U.S. dollars, they actually only result in 267 million in real money value. As a result they are losing almost fifty percent of their equity as a direct result of currency conversion. At the same time, they still have outstanding debt of 211 million outstanding. This position could also be subject to a major loss depending on the exchange position when they are ultimately paid. However, they could reduce the currency exposure of the 211 million if they concentrate on finding a currency position that is outside of the dollar vs. real exchange in order to change their currency position. If they continued down this trend however, they will lose an additional 100 million in real money value from their 211 million dollar investment. What this shows is that without a strong currency position, Embraer will suffer major net losses. They position is a very big problem for Embraer and they can solve this problem through many different strategies. They can globalize their operations so that in foreign countries they have independent and self-sustaining operations so that they do not have to convert currency in order to calculate net revenue. They could also go through another export broker other….....

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