Case 15-5 Xerox Corporation Recommendations
Case 15-5 Xerox Corporation Recommendations
Case 15-5 Xerox Corporation Recommendations
3. Transaction Exposure
We don’t think all the business units should be responsible for their transaction
currency exposure. The payables and receivables in different parts of the overall firm
may naturally hedge each other. So, we think that the transaction currency exposure is
best handled through centralized coordination of the corporation’s overall hedging
needs. This is likely to be cheaper and simpler, and it prevents the subsidiary manager
from becoming a foreign exchange rate forecaster and speculator. We want them to
focus on the main business operations.
4. Translation Exposure
Subsidiary managers should not be held responsible for translation effects, but we
don’t think that Xerox discounts the boosted financial results for unit performance
measurement if the currency goes in a favorable direction for the foreign operation is
a good way of evaluating the performance of subsidiaries. We suggest Xerox compare
budgets and actual results using the same metric and isolate inflation-related effects
through variance analysis. It can avoid unfair rewards or penalties and it is an easier
method to understand and carry out than their current practice.
Tracking Budget
Initial Projected Ending
Setting Initial 1 2 3
Budget Projected 4 5 6
Ending 7 8 9
5. Economic Exposure
The subsidiary manager should be held responsible for the dependence effects of
exchange rates resulting from economic exposure. It is appropriate for the control
system to evaluate the subsidiary manager on decisions that would have enabled the
subsidiary to respond to real exchange rate changes. Real exchange rate changes
require important strategic and operating decisions. It is good for Xerox to have
regular discussions about the currency and proposals for increasing market share or
profits.