Kate R.

Galanida
Lana Mae Lagumbay
Jane Mendez

TOYOTA CORPORATION

PART A:
I. Financial risks of a company (local or internal company)
Toyota Motor Corporation (Toyota) is the world's fourth-biggest vehicle manufacturer
and the largest in Japan. Camry, Corona, Corolla, and Lexus are just a few of the well-known
car models offered by the company. Toyota, although being a late starter in comparison to
General Motors and Ford, has emerged as one of the industry's most powerful players. Toyota
has continued to set new standards for delivering more value to customers than its competitors.
Changes in currency rates, interest rates, and the pricing of certain commodities and stocks
subject Toyota to market risk. Toyota employs a variety of derivative financial products to
mitigate these risks. In general, only creditworthy financial institutions are used to execute
these securities. The case discusses the many financial risks that Toyota faces and how it
addresses them.
In the normal course of business, Toyota utilized a variety of financial instruments. Only
creditworthy financial institutions were used to execute these securities. Almost all foreign
currency contracts were denominated in US dollars, euros, or other major industrialized
countries' currencies.
• Credit Risk - In the usual course of business, Toyota utilized a variety of financial
instruments. Only creditworthy financial institutions were used to execute these securities.
Almost all foreign currency contracts were denominated in US dollars, euros, or other major
industrialized countries' currencies.
• Market Risk - Changes in currency rates, interest rates, and the pricing of key
commodities and stocks exposed Toyota to market risk.
• Accounting and Valuation of Derivative Financial Instruments

II. Impact of these risks to company’s operation

Currency and interest rate fluctuations affect Toyota's operations. Toyota is vulnerable
to swings in foreign currency exchange rates, particularly those affecting the value of the
Japanese yen.
The US dollar and the euro, as well as the Australian dollar, Canadian dollar, and
British pound to a lesser extent. Foreign currency exchange changes effect Toyota's
consolidated financial statements, which are presented in Japanese yen, through both
translation risk and transaction risk. Toyota's price of items sold, and materials purchased in
foreign currencies may be affected by changes in foreign currency exchange rates. The rising
 of the Japanese yen against the US dollar may have a negative impact on Toyota's operating
results.

Toyota's financial situation and results of operations may be harmed if the Japanese yen
continues to appreciate against major currencies, notably the US dollar. Toyota claims that the
use of derivative financial instruments, such as interest rate swaps, and more localized product
production has minimized, but not eradicated, the effects of interest rate and foreign currency
exchange rate swings.

Nonetheless, a negative impact from foreign currency exchange rate fluctuations

and interest rate changes could harm Toyota's financial condition and results of operations.
High raw material prices and intense competition among Toyota's suppliers may have a
negative influence on the company's profitability. Increases in the price of raw materials used
by Toyota and its suppliers in the manufacture of their goods or parts and components, such
as steel, precious metals, non-ferrous alloys including aluminum, and plastic parts, could
result in increased production costs for parts and components. This, in turn, could have a
detrimental influence on Toyota's future profitability because the company may not be able to
pass on all the costs to its consumers or ask its suppliers to absorb them.

Toyota's capacity to raise cash may be harmed because of the financial market
slump. Should the global economy suddenly deteriorate, several financial institutions and
investors will have difficulty providing capital to the financial markets at levels that are
commensurate with their own financial capacity, and as a result, companies may be unable to
raise capital at terms that are commensurate with their creditworthiness. Toyota's financial
situation and results of operations may be harmed if it is unable to raise the necessary cash
under favorable conditions on a timely basis.

PART B:

I. Create risk management plan to address the risks of your chosen company

Credit Risk

Toyota Tsusho assigns eight levels to business partners based on their financial
situation and sets limits for each type of transaction, such as accounts receivable and
advance payments. The corporation creates transaction policies to prevent losses for
business partners who earn negative ratings, such as analyzing transaction conditions,
protecting accounts receivable or withdrawal, and executing personally focused
management.

Foreign Exchange Risk

Since they are subject to the risk of fluctuating foreign exchange rates, Toyota
Tsusho uses hedge mechanisms, such as forward exchange contracts, for transactions
 denominated in foreign currencies. If we are unable to hedge a transaction, we take steps to
reduce the risk of foreign currency rate fluctuations by establishing position limits and
evaluating the results of these transactions on a regular basis.

Product Risk
Toyota Tsusho establishes position limits for market product transactions that are
subject to commodity price fluctuations, such as nonferrous metals, petroleum products,
rubber, foodstuffs, and textiles; monitors whether these limits are being met on a regular
basis; and takes steps to mitigate price fluctuation risks.

II. Possible impact of your plan to the company

Collaborating with each department and Group Company, the strategy was
able to address group-wide risks and build and enhance unified risk management
systems. In terms of financial risk management, the company can measure its risk
assets on a regular basis and strives to ensure that risk assets are balanced by the
risk buffer on a consolidated basis. The risk buffer is defined and computed as the
group's entire financial corporate strength, and risk assets are calculated by
multiplying the risk asset principle based on each account on the balance sheet by
the risk weight indicated by the maximum projected loss ratio. It also maintains a
healthy and stable financial position by increasing the risk buffer depending on
profits attributed to the parent's owners for the year. Furthermore, we perform
country risk management to avoid an excessive accumulation of risk by analyzing
the overall amount of risk assets and keeping that sum below the upper limit
specified for each country. Risk adjusted Value Added (RVA) was also created as
a measure of risk profitability, with the goal of ensuring returns that are
commensurate with risk.