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. When you have finished reviewing the background materials, apply your knowledge of the material to answer the following questions in a four to five page paper:
- Suppose you are running a very small business that exports all of its products to Europe, and 100% of your revenue comes from Euros. You have a family to support and a drop in the value of the Euro could be devastating to your personal financial situation. What methods do you think would be best to manage this risk under your circumstances? Refer to at least one of the required readings from the background materials in your answer.
- Consider a large multinational consumer product company with operations in all major advanced and emerging economies. Now suppose the value of Indonesian and South African currencies drops dramatically and the value of the Chinese RMB 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 Deloitte Research (2006) and Shackman (2015) in your answer.
- Suppose you are a financial manager stationed in a foreign country, and your boss at headquarters in New York asks you to make a prediction about the future exchange rates in the country you are currently in. You see that the economy in the country you are in has started to grow more rapidly with a lot of new foreign investment. You also see that prices are much lower in this country than they are back in the U.S. For example, you see that the price of a Big Mac at McDonalds is half of what it costs you at home. Would you tell your boss that you expect the value of the currency in this country will increase or decrease? Explain your reasoning, and make references to Dlaby and Scott (2006) in your answer.
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:
Shackman, J. (2015). The economic and financial environment of international business. Trident University International, Cypress, CA.
International business finance. (2014). Pearson Learning Solutions. New York, NY.
After going through the tutorials, get into more specifics and details with the following required readings:
Goyal, A. (2013, Sep 19). Dealing with currency volatility. Businessline. [Proquest]
Dlaby, L., & Scott, J. (2006). Foreign exchange and international finance. International Business 3rd Edition. Thompson Higher Education, USA. http://college.cengage.com/school/ebooks/053849106…
Deloitte Research (2006). Managing in the face of exchange rate uncertainty: A case for operational hedging. www.iasplus.com/en/binary/dttpubs/0606exchangeratestudy.pdf