Question: Assume that you live in the United States and invest $60,000 to establish a language school called Escuela de Inglés in Mexico City, Mexico. You set up a small subsidiary in Mexico with an office and an attached classroom that you lease. You hire local individuals in Mexico who can speak English and teach it to others. Your school offers two types of courses: a 1-month structured course in English and a 1-week intensive course for individuals who already know English but want to improve their skills before visiting the United States. You advertise both types of teaching services in local newspapers. All revenue and expenses associated with your business are denominated in Mexican pesos. Your subsidiary sends most of the profits from the business in Mexico to you at the end of each month. Although your expenses are fairly stable, your revenue varies with the number of clients who sign up for the courses in Mexico. Answer the following questions as if you were serving on the board or as a manager of the business. The questions force you to assess the firm's opportunities and exposure and to consider potential strategies that your business might pursue.
1. Explain how the theory of competitive advantage could justify the existence of your business in Mexico.
2. Assume that your business in Mexico grows. Explain how global financial markets could help to finance the growth of the business and which criteria could use to make the correct financing decisions.
3. Explain how your business could be adversely affected by economic, political, cultural, demographic and legal issues in Mexico.
4. Describe the type of economic or other conditions in Mexico that could cause the Mexican peso to weaken and thereby adversely affect your business.
5. Under this situation what is your recommendation about the appropriate financial tools that could apply by management to minimize the negative effect of peso depreciation.
6. Explain how the activities of your business are related to the Balance of payments of the USA and Mexico?