Assignment:
Q1: Assume you are attending a meeting on the subject of exchange rates, specifically on the topic of the Economist's Big Mac Index and what this means for your firm's business in some countries. Assume that your firm has a subsidiary in Switzerland which functions as a shell corporation and operating subsidiaries in China, Brazil, and Malaysia. What does the Big Mac Index suggest in terms of risk to the firm and what can be done about it? (NOTE: make sure you refer to the most recent Big Mac Index.)
Q2: In this meeting, you are asked to participate in a business association meeting as a representative of your firm. The topic is about the IMF and its policy prescriptions for developing nations experiencing a currency crisis. First describe, in general, what these IMF policy prescriptions are? How might this affect an international business, i.e. a foreign firm operating in a country where these prescriptions are put in place? How might the IMF change its approach?
Q3 Instructions: Your firm placed an order with a Chinese firm worth 10 million CNY, and deliverable in 3 months. The agreement with the Chinese firm is that your firm has 3 months to pay after delivery. Keep in mind that your firm is based in the United States and obviously, your financial statements are stated in U.S. dollars. Your manager has asked you to prepare a recommendation on whether the cost of this transaction may be affected by foreign exchange risk and if so, how best to minimize this risk. In your report, you need to identify the spot exchange rate between the two currencies, find information on what direction the exchange rate might be headed in the future, i.e. is the value of the Chinese currency (CNY) expected to move relative to the US dollar over the next year, what is or are the reasons for this projection (so that management can discuss the risks further), and what strategies might be considered by management and what would you recommend. Because this is a financial transaction, make sure you provide the numbers. Your manager wants you to access a reliable site to find the current and forecasted exchange rates, as well as reliable sources to back up your report on how and why the exchange rate between both currencies might move.