7) Read the Closing Case: “Caterpillar” on page 349 of the text and answer the following questions about foreign exchange risk management. (Please see attachment page349.)
a) How did the strong U.S. dollar in the 1980’s impact the competitive position of Caterpillar? Between 1980 and the mid-2000’s, what actions did Caterpillar take to manage and change its competitive position?
b) How did the strong U.S. dollar in 2008 impact the competitive position of Caterpillar? Why was the impact of the stronger dollar in 2008 different than in the 1980’s?
c) How did the weak dollar in the mid-2000’s impact the competitive position of Caterpillar?
d) How did Caterpillar use strategy as a “real hedge” to reduce its exposure to foreign exchange risk? What is the downside of a company adjusting its strategy in response to fluctuations in exchange rates?
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