1. If the world had stable foreign exchange rates, your text on international finance would be a much thinner book. Because we live in a world of often rapidly fluctuating exchange rates, one of the core issues of international finance is studying ways the international firm can minimize its risk from exchange rate losses in its international transactions, its international investments and in its repatriation of overseas profits.Through the study of the materials in this course, you will learn many sophisticated techniques for minimizing risk. The following question is designed to get you thinking about the topic.
You are the CFO of a U.S. firm with a wholly owned subsidiary in Mexico that manufactures component parts for your U.S. assembly operations. The subsidiary has been financed by bank borrowings in the United States. You have just been told by one of your analysts that the Mexican peso is expected to depreciate by 30% against the U.S. dollar on the foreign exchange markets over the next year.
What actions, if any, should you take?
2. Choose a country and show the U.S. exports to that country and imports from that country for the last 10 years. Note any changes and discuss the reasons for the changes.