A Case Study of Abercrombie & Fitch Entry into the Brazilian Market Research Paper - 1

A Case Study of Abercrombie & Fitch Entry into the Brazilian Market - Research Paper Example Some may also depict law costs of production characterized by cheap power, raw materials, labor and transport, but with very high tax rates and strict laws for involvement in social corporate responsibilities. Since Abercrombie and Fitch is one of the multinational companies forecasting to open and expand new market in the rapidly growing and stabilizing Brazilian economy, it must first consider understanding various risks likely to occur in its foreign mission in Brazil. Foreign currency risks involve risks accruing from the periodical fluctuations in the value of the foreign currencies. One type of financial risk accruing from fluctuation in foreign currencies, and likely faced by Abercrombie and Fitch is the transaction risk (Mullineux, 1987). Exporters and importers are the likely business people to experience such risks, as they need to deal with different currencies to stamp their trading. The risks likely faced by exporters involves fall in the value of the local currency in t he foreign market as at the time of product arrival and making of payment by the foreign importer. When this happens, the foreign importer will have to convert the payment in consistence with the prevailing transaction and not with initial value as at the time ordering for the product. This then translates into substantial profit for the importer and loss on the side of the exporter. To the importer, foreign exchange risk may occur when the foreign currency of the exporter gain value by the foreign importer.