Asia Currency Crisis and Fetc

Asia Currency Crisis

 There were three negative impacts on FETC. One of main impacts was that the business unit across Asia individually suffered foreign currency transaction loss, like US dollar. Secondly, the FETC group also suffer currency loss in both profit and asset value which contributed to Asia region. Not only the Swedish krona value of Asian currency financial results was reduced, the equity value of the Asian business also reduced, leading a suffer on the consolidated equity of FETC. At the same time, the company was in significant financial trouble because with the devaluations of the Asian currencies, FETC was now realizing equity losses with no corresponding fall in the value of the dollar liabilities. Third, the competitiveness advantages of FETC group were affected by the crisis. Local company used lower price, looting market share from FETC group to survive in the crisis. But the FETC was taking a highly increasing operating exposure due to the currency fluctuations.

  To holding the situation, FETC tried several strategies. The first one they did is asking help from banks or financial institutions to stabilize the different working capital lines. Unfortunately, most of the banks refused to offer additional working capital loans to the company considering the crisis and its manager group published a profit warning in 1997.The second action they considered was to liquidate their non-core business to acquire cash. This was a controversial decision in manger group which said it should be wait and sell units progressively.

Evaluation

Overall, the performance of Far East trading company during Asia financial crisis is inefficient and ineffective. The subsidiaries of FETC used its trustworthiness to borrowed money from financial banks and institution made burden of high interest cost. More seriously, they were regardless the foreign exchange risk, which leaded to the worst problems in the Asian financial crisis, to borrow from US dollar.

Experiencing failure in both investments and financial operation, Far East trading company was hit seriously by the Asian financial crisis. They had more than 70 percent of its operation activities on the far eastern region of Asia. The currency risk caused the equity loss to have made the management group published Profit Warning two times. Even they were considered to sell its non-core business, which provide 31% percent of total sales to generate funds, Far east trading company were still facing a terrible crisis.