Unfavorable is paying more Ringgit to buy

Unfavorable
foreign exchange cost is another problem encountered by TCMHB. It was also one
of the reasons of poor financial performance. According to annual report 2016,
the group continued with program to improve efficiencies and cost effectiveness
throughout the organization to ensure financial sustainability. TCMHB claimed
that the loss suffered was due to the unrealized foreign exchange loss, arising
from financing overseas entities denominated in foreign currencies (Tan Chong
posts loss for the first time in 17 years, 2016).

Transaction
exchange gain or loss means increase or decrease in flow of cash caused by
exchange rate change of the two currencies (The Law Dictionary, n.d.).
Performance of Ringgit is poor in 2016 and 2017, most of the manufacturer which
relies heavily on imported raw material may significantly affected by
performance of Ringgit. Based on the challenges market situation and currency
Ringgit, TCMHB is suffered a lot during these 2 years.

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Besides, foreign
exchange rate and the weaker ringgit have significantly impact on revenue of
TCMHB. Volatility in the foreign exchange market and weakening of the Malaysian
ringgit put pressure on profit margins due to its impact on the costs of
imported CKD kits and components. Moreover, weaker ringgit Malaysia is
increasing the production cost. When the material is import from other
countries and at the same time, currency of ringgit is dropping, manufacturer
is paying more Ringgit to buy foreign raw materials because ringgit is
depreciated against foreign currency. The trading environment continues to be
competitive with new model launches and aggressive sales and marketing
campaigns by other automotive companies (Yimie, 2016).

In summary,
unfavorable foreign exchange rate is one of the reason to explain the lower
revenue which also a problem faced by TCMHB. Slower consumer demand and
consequently lower the earnings before interest, tax, depreciation and
amortization as a result of higher completely knocked down (CKD) kit cost
arising from unfavorable foreign exchange rate compared to previous year. The
revenue of TCMHB when compared with the fourth quarter ended December 2015,
fell by 3.0 percent, from RM 1.5 billion to RM 1.47 billion. Loss before tax
was at RM 36.7 million with net loss of RM 37.2 million. The earnings before
interest, tax, depreciation and amortization was at RM 13.7 million due to the
unfavorable foreign exchange rate (Tan Chong Motor posts RM37m net loss in Q1,
2016).