. In few words explain what Operating Exposures are and comment on how did each, Toyota and Nissan, manage their operating risk?  

Japanese Car Manufacturers Follow Different Paths to Profitability

In June 2011, with the yen near its all-time high against the U.S. dollar, Toyota announced that it aimed to make car exports from Japan more profitable by simplifying production techniques and slashing expenses. Its specific goal was to be competitive at a rate of 80 to the dollar. At the time, Toyota was unable to make a profit on exported cars when the U.S. dollar was below 90. Toyota's target set a new benchmark for Toyota's 17 factories in Japan. Unfortunately for Toyota, the exchange rate at the time was already at 80.26/$1. The yen's appreciation was particularly harmful to Toyota because nearly half its global sales volume consisted of cars made in Japan. In contrast, for its Japanese rivals Honda and Nissan, that level was about 25%. Given its exceptionally large Japanese production base, Toyota's costsand profitsare most sensitive to yen appreciation. The yen's continuing rise has sparked debate over the wisdom of Toyota's strategy to maintain so much production in Japan. That strategy was facilitated by Toyota's ability to achieve dramatic cost cuts, mostly be using less-expensive parts. But critics say that tactic has led to lower quality, leading to more recalls. The new plan is to trim costs by reducing the number of steps needed to make key parts, largely by simplifying production design. Analysts say the company must do more, not just simplifying parts production but procuring more parts overseas, relocating domestic plants abroad, and cutting the number of car models. Meanwhile, Nissan's strategy to cope with a rising yen has been to aggressively localize production of cars in overseas markets. Specifically, Nissan pledged in 2011 to maintain Japanese production at one million vehicles but that over the next five years all increases in production would be at plants located outside of Japan. Similarly, Honda's response to the rising yen was its decision in late 2011 to boost its North American manufacturing by up to 40% by the end of 2014, accelerating its move away from manufacturing in Japan. Following this expansion, North American production could represent more than 50% of Honda's global capacity. Honda expected to use some of this extra capacity to significantly increase exports to other markets around the world.