Task: 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.
Question 1: What methods do you think would be best to manage this risk under your circumstances?
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.
Question 2: 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?
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.
Question 3: Would you tell your boss that you expect the value of the currency in this country will increase or decrease?
Question 4: The currency of The Netherlands. Is it stable? Does The Netherlands have fixed or floating exchange rates? Does the exchange rate fluctuate a lot?
Question 5: The banking system in The Netherlands. How safe is this system? Any recent banking crisis in The Netherlands?
Question 6: Overall does the financial system in The Netherlands make it easy or difficult to do business?
Question 7: What kind of steps would you recommend for a company doing business in The Netherlands to hedge or minimize their financial risks?