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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (17074)	5/14/2003 11:52:12 PM
From: Spekulatius	Respond to of 78549

Exchange rate fluctuations can have a large impact on earnings for companies that operate a) in a low margin business b) have cost in one currency and revenues in another. Both a) and b) is true for German car companies, even though DCX may be a bad example because of its diversification. Still, DCX makes half its operating profits from Mercedes, which sells half of its car in the America's. When you do the numbers one can easily see +/-10% earnings fluctuation for the company as a whole with a 20% US$ swing against the Euro. As for European pharmaceutical companies, US$ swings tend to have very little impact because the high margin makes the impact of margin compression less severe and amazingly enough even imported pharmaceuticals have a high local cost component (Sales and marketing cost are in local currencies and frequently 50%+ of the sales price).