Tuesday, February 11, 2020
Starbucks in Mexico Global Business Plan Research Paper
Starbucks in Mexico Global Business Plan - Research Paper Example The currency fluctuation is an issue that threatens the profitability of the Starbucks in Mexico. Starbucks in Mexico can be affected by the value changes of currencies due to the companyÃ¢â¬â¢s exports and imports. Conducting a business transaction in a different country the venture has to convert currencies at some prevalent exchange rate (Evans). The company uses two approaches to reduce the exchange rate risk. The two approaches are netting and hedging. Through hedging, the company uses a standard approach that is the interest rate swap. Interest rate swaps are whereby two companies in different countries agree to exchange their debt obligations (Evans). Through the interest rate swaps, the business avoids the changes in the foreign exchange rates. The other approach used in dealing with foreign exchange risks is using the netting approach. The netting approach is where the company maintains an equal level of foreign payables against foreign receivables (Evans). Through the use of the netting method, the changes in foreign currency are catered for by the balance in the payables and receivables. The Starbucks in Mexico would choose from various domestic and foreign sources of finance in its path to global expansion. A company decides on the form of financing depending on the capital requirement and the period it is needed (Timimi, 2010). One of the sources of financing Starbuck in Mexico would be the ownership capital that involves the raising of substantial funds through the companyÃ¢â¬â¢s shareholders.