MNC Project This project will give you the opportunity to manage your own MNC. The exercise will be more abstract than technical, which means you will discuss the aspects learned in the course and how

Semester-Long Project: Running your Own Multinational Corporation (MNC)

Due February 29th

This project will give you the opportunity to manage your own MNC. The exercise will be more abstract than technical, which means you will discuss the aspects learned in the course and how they will apply to your specific MNC, as opposed to presenting me with a business plan with forecasts, etc. The idea is to have you think about the many decisions required in running an MNC.

Strategy for completing the project:

I do not need to have a reformatted, professional looking document. The preferred method will be for you to simply answer the questions below as we progress through the course within this document. I have provided some guidance as to when you should answer the questions by indicating the chapters in the text that are associated with the questions asked.

Rubric: This project will count for 20% of the total course grade. The project will be graded out of 100 points and the breakdown is:

10%: All questions are answered

20%: Your answers demonstrate that you are thinking about them in the context of your specific business.

70%: Your answers demonstrate that you understand the material in the chapter related to international financial management.

Chapter 1 Running Your Own MNC

Developing Your Idea
Create an idea for your own MNC to conduct international business. Your idea should be simplified to the degree that you could possibly implement it someday. However, your idea should also be sufficiently creative to be successful if done properly. Your idea should focus on one country and one foreign currency, since many MNCs are focused in this manner when they are first created. So that you can recognize the issues regarding exchange rate risk that are discussed throughout this text, you must assume that you will receive foreign currency when selling your product. Your idea should be for a small MNC instead of a large MNC because even most large MNCs began as small firms. The following questions will help you define your MNC idea:

1. What is the product that you plan to sell?

2. What foreign country (s) do you plan to target?

3. How will you sell the product in that country? (i.e., through a distributor? by mail?)

4. Is there some evidence that consumers in that country would buy this type of product?

5. Do you need to purchase supplies, hire labor, etc. in the foreign country? More generally, will any expenses you incur from producing the product be in foreign currency?

Chapter 16 Running Your Own MNC

Assessing Exposure to Country Risk

1. Describe the financial factors that expose your business to country risk.

2. Describe the political factors that expose your business to country risk.

Chapter 3 Running Your Own MNC

Using the Foreign Exchange Market

1. Explain how you will use the F/X spot market for your business.

2. Will you possibly need the F/X forward, futures, or options market? Explain.

Accessing Recent Exchange Rates

Go to www.oanda.com. Click on “Currency Tools”, scroll down to “Historical Currency Converters”, and then click on “Currency Trends”. Explain how the main foreign currency for your business has changed over the last month, the last three months, and the last year. You can use Yahoo! Finance or other sites for this part.

Chapter 19 Running Your Own MNC

Ensuring Payment for Exports

Explain the payment method that your business would most likely use when exporting to a foreign country.

Chapter 4 Running Your Own MNC

Monitoring Movements in the Foreign Currency's Value

What key factors likely affect the value of the foreign currency of concern over time? Are there any current events of particular concern, and do you expect their impact to short-term or long-term?

Chapter 5 Running Your Own MNC

Using Currency Futures and Options

1. How can you use currency futures to hedge the exchange rate risk of your MNC? Be specific to the way you will be conducting your business (e.g., importing or exporting).

2. How can you use currency options to hedge the exchange rate risk of your MNC? Be specific to the way you will be conducting your business (e.g., importing or exporting).

Accessing Futures Quotes

Go to www.cmegroup.com. Determine the prevailing futures price of the main foreign currency for your business. Go to www.oanda.com and determine the prevailing spot rate. What is the discount or premium of the futures price to the spot price?

Chapter 7 Running Your Own MNC

Assessing Spot and Forward Rates (Go to www.oanda.com or https://finance.yahoo.com/currencies

1. Obtain a quotation for the spot rate of the foreign currency (that you will receive from your business).

2. Obtain a quotation for the one-year forward rate of the same foreign currency.

3. Then obtain the prevailing one-year interest rates in the United States and the foreign country of concern.

4. Using the information from above, does it appear that interest rate parity exists?

Chapter 8 Running Your Own MNC

Determining Whether IFE Holds

Use The Wall Street Journal or another data source to record the interest rate differential between the interest rate of the foreign country in which you plan to do business and the U.S. rate over the last five or so quarters. Then, review the exchange rate percentage change in the foreign currency of concern over each of those corresponding quarters to determine whether the international Fisher effect (IFE) appears to hold over those quarters for that currency.

Chapter 10 Running Your Own MNC

Recognizing Exposure to Exchange Rate Risk

Recall that when you created your business idea, it was assumed that your receivables would be denominated in the foreign currency of concern upon the sale of your products.

1. Describe your exposure to exchange rate risk. That is, describe the exchange rate conditions affecting the performance of your business.

2. Is your business subject to transaction exposure? Economic exposure? Translation exposure? Explain why your business is or is not subject to each of these types of exposure.

Chapter 11 Running Your Own MNC

Hedging with Forward Contracts

1. Given your exposure to exchange rate risk, explain how you could use forward contracts to hedge.

2. Explain how you could use currency options to hedge your exposure.

Chapter 13 Running Your Own MNC

Establishing a Subsidiary in Foreign Country

1. Assuming that your international business is successful, identify reasons why it may be feasible (e.g., the advantages) to establish a small subsidiary in the foreign country rather than continue exporting.

2. Identify the disadvantages associated with establishing a small subsidiary in the foreign country of concern.

Chapter 14 Running Your Own MNC

Deriving a Required Rate of Return for an International Project

Consider a possible project that would result in expansion of your international business. Describe how you would derive a required rate of return for this project.