A Stronger Euro and its Impact on European Affiliate Earnings




Joe Quinlan/Rebecca McCaughrin (New York) Morgan Stanley


the article



from the article ..

Cross-border trade and foreign affiliate sales are the two primary means by which multinationals deliver goods and services to foreign markets. Currency adjustments affect both variables, although the speed by which price changes are transmitted via trade versus foreign affiliates varies. Typically, exchange rate adjustments affect trade flows with a lag as foreign suppliers adjust production schedules and shipments, and as customers rethink purchasing strategies. The process takes time and usually appears in the trade data three to six months after the initial move in prices.



In the case of foreign affiliates, a pronounced shift in exchange rates has a more immediate effect. Affiliate sales and earnings are usually tallied monthly, and rolled into the financial statements of the parent each quarter. The upshot is that the effects of shifting exchange rates are transmitted to the balance sheets of multinationals almost immediately and appear long before the trade data are available.