Managerial Economics 2nd Edition by William Boyes

Exercise 3

The Foreign-Exchange Curiosity
In late 2009, Oracle's earnings were reduced by 0.05/share due to foreign exchange effects. This was the third quarter in a row this happened. SAP had its total 2007 earnings wiped out by foreign-exchange effects. In 2007, Airbus estimated that every euro appreciation of 10 cents against the U.S. dollar cost his company €1B, due to the fact that Airbus costs are denominated in euros, whereas the bulk of its revenues are in dollars. In the 1990s, Procter Gamble lost $157 million in a currency bet involving dollars and German marks, Gibson Greetings lost $20 million, and Long-Term Capital Management, a hedge fund, lost $4 billion with currency and interest rate derivatives. In 2009, Fortune 100 companies lost between $15 billion and $20 billion due to currency moves.
The 2008 crisis also affected China and Russia as multinational companies reduced or terminated their expenditures in these nations. Although both China and Russia experienced a decline in the investment by foreign companies, it does not mean that all multinational corporations are reducing investment in these two large emerging markets. Indeed, some of these corporations are actually increasing their investments to capture the opportunities created by the global financial crisis and the responses of the Chinese and Russian governments.
What causes a company to locate or not locate in a certain locale