3 business questions complete solutions correct answers key

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1. 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.

2. 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 Avadhani (2010) and Shackman (2015) in your answer.

3. 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 Agarwal (2009) in your answer.

References:

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.

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]

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]

Agarwal, O. (2009). Chapter 5: Foreign exchange risks. International Financial Management.

Himalaya Publishing House, Mumbai, IND. [Ebrary]

Avadhani, V. (2010). Chapter 7: Management of international transaction exposure. International

Financial Management. Himalaya Publishing House, Mumbai, IND. [Ebrary]