Prepare answers to each of the questions and application problems indicated below. Your response should include a statement of the problem or question, along with your answer and narrative analysis as needed. For the Internet/Excel exercise, you will go to the OANDA Web site (link in the Resources) for the direct exchange rate of markets.In your International Financial Management textbook, complete the following:”Small Business Dilemma, Assessment of Exchange Rate Exposure by the Sports Export Company,” page 352.”Internet/Excel Exercises” on the Canadian dollar and the euro, Problem 1 (a, b, c, and d), pages 352–353.In all cases where numeric solutions are expected, provide full documentation of the process used to reach the solution, using Excel to provide computational details.Where analysis is expected, use information from the textbook to inform your analysis—not replace it—incorporating creativity, critical thinking, and real-life perspectives. Cite all resource materials used in your response with APA (6th edition) style and format.A thorough, professional presentation of your analysis and results is an important consideration. Enhance your presentation skills by using applicable tools, such as tables, graphs, diagrams, and commentary as appropriate in all assignments in this course.British pound
$1.50
Jogs, Ltd.,
affected?
$1.47 to $1.53
$ 0079 to $ 0087
5.020 to $.028
Japanese yen
$.0083
dollar
time.
Thai baht
$.024
the po
6. Given that Thai roller blade manufacturers
in Thailand have begun targeting the US, rollet al
market, how do you think Blades’ U.S. sales were
affected by the depreciation of the Thai baht? How
you think its exports to Thailand and its importato
Thailand and Japan were affected by the depreciate
Holt has asked you to answer the following questions:
1. What type(s) of exposure (transaction,
economic, or translation exposure) is Blades subject to?
Why?
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SMALL BUSINESS DILEMMA
Assessment of Exchange Rate Exposure by the Sports Exports Company
At the current time, the Sports Exports Company is 2. Logan is considering a change in the pricing polio
willing to receive payments in British pounds for the
in which the importer must pay in dollars so that
monthly exports it sends to the United Kingdom. Logan will not have to worry about converting pounds
Although all of its receivables are denominated in to dollars every month. If implemented, would this
pounds, it has no payables in pounds or in any other policy eliminate the transaction exposure of the Spons
foreign currency. Jim Logan, owner of the Sports Exports Company? Would it eliminate Sports Expon
Exports Company, wants to assess his firm’s exposure economic exposure? Explain.
to exchange rate risk
3. If Logan decides to implement the policy described
in the previous question, how would the Sports Experts
1. Would you desbe the exposure of the
Company be affected (if at all) by appreciation of the
Sports Exports Company to exchange rate risk as
transaction exposure? Economic exposure? Trans-
pound? By depreciation of the pound? Would these
lation exposure?
effects on Sports Exports differ if Logan retained his
original policy of pricing the exports in British pound?
INTERNET/EXCEL EXERCISES
ар
1. Go to www.oanda.com and obtain the direct
exchange rate of the Canadian dollar and euro at the
beginning of each of the last 7 years.
Assume you received C$2 million in earning from
exchange rate of the Canadian dollar at the beginning
of each year to determine how many U.S. dollars Joe
received. Determine the percentage change in the deler
a
economic exposure? Explain.
willing to receive payments in British
monthly exports it sends to the United Kingdom.
Although all of its receivables are denominated in
pounds, it has no payables in pounds or in any other
foreign currency. Jim Logan, owner of the Sports
Exports Company, wants to assess his firm’s exposure
to exchange rate risk
1. Would you describe the exposure of the
Sports Exports Company to exchange rate risk as
transaction exposure? Economic exposure? Trans-
lation exposure?
Logan
to dollars every month. If implemented, would this
policy eliminate the transaction exposure of the Spa
Exports Company? Would it eliminate Sports Expo
in the previous question, how would the Sports Eapen
3. If Logan decides to implement the policy describe
Company be affected (if at all) by appreciation de
pound? By depreciation of the pound? Would these
effects on Sports Exports differ if Logan retained his
original policy of pricing the exports in British pound
INTERNET/EXCEL EXERCISES
1. Go to www.oanda.com and obtain the direct
exchange rate of the Canadian dollar and euro at the
beginning of each of the last 7 years.
a. Assume you received CS2 million in earnings from
your Canadian subsidiary at the beginning of each year
over the last 7 years. Multiply this amount by the direct
exchange rate of the Canadian dollar at the beginning
of each year to determine how many U.S. dollars you
received. Determine the percentage change in the dollar
cash flows received from one year to the next. Deter
mine the standard deviation of these percentage
changes. This measures the volatility of movements in
Chapter 10: Measuring Exposure to Exchange Rate Fluctuations
353
business over time.
ume
the dollar earnings resulting from your Canadian
sidiary. Repeat the same process for the euro to mea-
at the beginning of each year from your German sub-
sure the volatility of movements in the dollar cash
Hows resulting from your German business over time.
Are the movements in dollar cash flows more volatile
for the Canadian business or the German business?
c. Now consider the dollar cash flows you received
from the Canadian subsidiary and the German sub-
sidiary combined. That is, add the dollar cash flows
received from both businesses for each year. Repeat the
process to measure the volatility of movements in the
dollar cash flows resulting from both businesses over
time. Compare the volatility in the dollar cash flows of
the portfolio to the volatility in cash flows resulting
from the German business. Does it appear that diver-
sification of businesses across two countries results in
more stable cash flows than the business in Germany?
Explain.
d. Compare the volatility in the dollar cash flows of
the portfolio to the volatility in cash flows resulting
from the Canadian business. Does it appear that
diversification of businesses across two countries
results in more stable cash flow movements than the
business in Canada? Explain.
2. The following website contains annual reports of
many MNCs: www.annualreportservice.com. Review
the annual report of your choice. Look for any
comments in the report that describe the MNC’s
transaction exposure, economic exposure, or transla-
tion exposure. Summarize the MNC’s exposure based
on the comments in the annual report.
ONLINE ARTICLES WITH REAL-WORLD EXAMPLES
Find a recent article online that describes an actual search terms (and include the current year as a searc
nnnlication or a real world exam- term to ensure that the online articles are recent).
AND exchange rate effects
international
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