BUS 401 Module #3 Case & SLP

Module 3 - Case

International Financial Management

Assignment Overview

Before starting the case, make sure to go through the required reading material carefully. Review the concepts of exchange rates, currency hedging, and other methods of dealing with exchange rate risk. The topic of this module is difficult, so make sure you go carefully through all of the required tutorials and book chapters.

Case Assignment

When you have finished reviewing the background materials, apply your knowledge of the material to answer the following questions in a 4- to 5-page paper:

1. Suppose you are a consultant who travels the world to make predictions about exchange rates for your clients. You have been hired to go to a foreign country to make a prediction about whether the value of the currency in this country will go up or down. When you arrive in this country, the first thing you notice is that everything is very expensive compared to what you are used to in the United States. Some items such as soft drinks or bottled water cost twice as much as what you pay at home. You also find that the economy in this country is starting to shrink a bit, and several foreign-owned businesses are moving out of the country. Would you tell your client that you expect the value of the currency in this country will increase or decrease? Explain your reasoning, and make references to Agarwal (2009) in your answer.
2. Suppose a small manufacturing business purchases 90% of its raw materials and supplies from Japan. It is a very specialized business and has no place other than Japan to purchase its materials. Thus, if the value of the Japanese currency goes up compared to the dollar, profit margins will go down since it will cost the company more to purchase its supplies. What methods do you think would be best to manage this risk under these circumstances? Refer to at least one of the required readings from the background materials in your answer.
3. Consider a large multinational consumer product company with operations in all major advanced and emerging economies. Now suppose the value of the Indian and Brazilian currencies drops dramatically and the value of the Mexican peso increases dramatically. What kind of strategic changes in marketing and/or location of production facilities do you think this company should take given these new exchange rates? Explain your reasoning, and make references to Avadhani (2010) and Shackman (2015) in your answer.

Assignment Expectations

• Answer the assignment questions directly.
• Stay focused on the precise assignment questions. Don’t go off on tangents or devote a lot of space to summarizing general background materials.
• Make sure to use reliable and credible sources as your references. Articles published in established newspapers or business journals/magazines are preferred. If you find articles on the internet, make sure they are from credible sources.
• Reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC portal.

Module 3 - SLP

International Financial Management

In Modules 1 and 2 you looked at the cultural, legal, and political situation in your chosen country. Continue to do research on the country that you wrote about in Modules 1 and 2, but now do some research on the currency and banking situation in this country.

We normally think of currency and banking risks as being something confined to third world or developing countries. But events in the past few years such as the Euro crisis or the financial crisis in the United States have shown that not even wealthy, developed countries are without risks on the financial side. So it is important for any company doing business in your country to carefully consider the risks that they face.

After you’ve done some research about financial issues in your country, write a 2- to 3-page paper covering the following issues:

1. The currency of your country: Is it stable? Does your country have fixed or floating exchange rates? Does the exchange rate fluctuate a lot?
2. The banking system in your country: How safe is this system? Any recent banking crisis in your country?
3. Overall, does the financial system in your country make it easy or difficult to do business? What kind of steps would you recommend for a company doing business in your country to hedge or minimize its financial risks? Refer to at least one of the required readings from the background materials in your answer.

SLP Assignment Expectations

• Answer the assignment questions directly.
• Stay focused on the precise assignment questions. Don’t go off on tangents or devote a lot of space to summarizing general background materials.
• Make sure to use reliable and credible sources as your references. Articles published in established newspapers or business journals/magazines are preferred. If you find articles on the internet, make sure they are from credible sources.
• Reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC portal.

Module 3 - Background

International Financial Management

Required Reading

A good place to start is by viewing the PowerPoint presentation and interactive tutorial linked below. These presentations will give you a good general overview and introduction to this topic:

International business finance. (2014). Pearson Learning Solutions. New York, NY.

International trade and finance. (2014). Pearson Learning Solutions. New York, NY. [Pay special attention to the last half of this tutorial on exchange rates. The first half is not as important.]

Shackman, J. (2015). The economic and financial environment of international business. Trident University International, Cypress, CA.

After going through the tutorials, get into more specifics and details with the following required readings:

Goyal, A. (2013, September 19). Dealing with currency volatility. Businessline. [ProQuest]

Agarwal, O. (2009). Chapter 5: Foreign exchange risks. In International Financial Management. Mumbai, India: Himalaya Publishing House. [Ebrary].

The following book chapter is especially important for the discussion about managing marketing and production operations in response to changes in exchange rates at the end of the chapter:

Avadhani, V. (2010). Chapter 7: Management of international transaction exposure. In International Financial Management. Mumbai, India: Himalaya Publishing House. [Ebrary]