Cadbury Schweppes plc

Cadbury Schweppes plc Introduction Cadbury Schweppes plc is a confectionery and non-alcoholic beverage company. The Company’s products include brands, such as such as Cadbury, Schweppes, Halls, Trident, Dr Pepper, Snapple, Trebor, Dentyne, Bubblicious and Bassett. Cadbury Schweppes operates in five segments: Britain, Ireland, Middle East and Africa (BIMA), Europe, Americas Confectionery, Asia Pacific and Americas Beverages. Americas Confectionery, BIMA and Europe produce and distribute confectionery products in their respective geographical markets. (Google Finance, 2008). The Asia Pacific segment produces and distributes confectionery and beverages products in the Asia Pacific region. Americas Beverages market, produce and distribute branded soft drinks in North America. During the year ended December 31, 2007, the Company acquired confectionery businesses in Romania (Kandia-Excelent), Japan (Sansei Foods) and Turkey (Intergum). (Google Finance, 2008) Rio Tinto plc and Rio Tinto Limited operate a s one business organization (Rio Tinto). Rio Tinto is an international mining company. The Company’s business is finding, mining and processing mineral resources. (Google Finance, 2008). Its major products are aluminum, copper, diamonds, coal, uranium, gold, industrial minerals (borax, titanium dioxide, salt, talc), and iron ore. Businesses include open pit and underground mines, mills, refineries and smelters, as well as a number of research and service facilities. On October 23, 2007, Rio Tinto acquired Alcan Inc. (Google Finance, 2008) Both companies have operations that span across national boundaries, as well as long term liabilities. This indicates that they face both exchange rate and interest rate risks. This paper is aimed at looking at the different exchange rate and interest rate risks that these companies face, the risk management policies, the instruments used in hedging these risks and the implications of these risk and risk management strategies to investors. H aving said this, the paper will now go on to discuss the different types of risks. Currency Risk Currency exposure refers to the risk of financial loss that a company suffers as a result of changes or fluctuations in interest rates. The financial loss may come as a result of changes in the value of cash flows or as a result of changes in the recorded value of assets and liabilities of the company. There are three main types of exposure that a company may face. These include (Shapiro, 2003): Translation exposure; Transaction exposure; and Economic Exposure. Translation exposure is the exposure a firm faces because of its assets and liabilities that are denominated in foreign currency. It is the exposure that is basically faced by multinational companies that have subsidiaries in many other countries. Translation exposure has no major effect on value of the firm because it affects only balance sheet and income statement items that are denominated in a foreign currency. Transac tion exposure is the exposure a firm faces as a result of its contractual obligations that are denominated in a foreign currency. It represents the exposure a company faces as a result of its contractual obligations that have already been booked but that would be settled at a future date (Shapiro, 2003). These include for example, repayment of loans denominated in overseas currencies, purchases from overseas companies and dividends