...Eun & Resnick 4e CHAPTER 9 Management of Economic Exposure How to Measure Economic Exposure International Finance in Practice: U.S. Firms Feel the Pain of Peso’s Plunge Operating Exposure: Definition Illustration of Operating Exposure Determinants of Operating Exposure Managing Operating Exposure Selecting Low-Cost Production Sites International Finance in Practice: The Strong Yen and Toyota’s Choice Flexible Sourcing Policy Diversification of the Market R&D Efforts and Product Differentiation Financial Hedging International Finance in Practice: Porsche Powers Profit with Currency Plays CASE APPLICATION: Exchange Risk Management at Merck Summary MINI CASE: Economic Exposure of Albion Computers PLC How to Measure Economic Exposure 1. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Can have a significant economic consequences for U.S. firms. b) Can have a significant economic consequences for Japanese firms. c) Can have a significant economic consequences for both U.S. and Japanese firms. d) None of the above Answer: c) 2. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Will tend to weaken the competitive position of import-competing U.S. car makers. b) Will tend to strengthen the competitive position of import-competing U.S. car makers. c) Will tend to strengthen the competitive position of Japanese...
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...Dear fellow shareholders, What a year. Despite many challenges faced by the company, we have been successful in maintaining our position as the leading cell phone manufacturer in the world. The company’s subsidiaries in China, Japan, Israel and France face many economic challenges ahead. The challenges faced and the steps taken to solve those challenges, have been explained in the report. We start by mentioning next year’s inflation rate and then forecasting the spot rate one year from today. This will give us an idea about how the various concerned currencies are relatively moving to one another. The effects of these movements are explained country wise later in the report. The inflation rates forecasted for next year are as follows, Country | Inflation rate | U.S.A | 2.3%[2] | China | 1.89%[1] | Israel | 0.44%[3] | France | 0.62%[4] | Japan | 2.5%[5] | UAE | 3.11%[10] | Current spot rate (as of 10/06/2014) | Dollar | Renminbi | Shekel | Euro | Yen | Dollar | --- | 6.1408 | 3.6794 | 0.7928 | 109.14 | Renminbi | 0.1628 | --- | 0.5993 | 0.1291 | 17.7776 | Shekel | 0.2717 | 1.6686 | --- | 0.2155 | 29.6735 | Euro | 1.2613 | 7.7459 | 4.6403 | --- | 136.9863 | Yen | 0.0091 | 0.05625 | 0.0337 | 0.0073 | --- | Forecast spot rate (as of 10/06/2015) | Dollar | Renminbi | Shekel | Euro | Yen | Dollar | --- | 6.1161 | 3.6125 | 0.7797 | 109.353 | Renminbi | 0.1635 | --- | 0.5875 | 0.1274 | 18.004 | Shekel | 0.2768 | 1.7021 | --- | 0.2158...
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...Abstract The Walt Disney Company has been able to gain recognition and is known across the world through its Disney movies like The Little Mermaid, Beauty & the Beast, The Incredibles and Finding Nemo just to name a few. The company was also able to make a name for itself through amusement parks and resorts, cruise lines, merchandise and media networks. Throughout this paper we will take a look at the company’s life cycle, competitive forces against its competitors through a SWOT analysis, we’ll also be taking a look at the company’s financial data and historical trend. From there, we will determine whether the Walt Disney Company is a good company to invest in or whether one should sell their stock or hold. Walt Disney Company was founded by two brothers, Walt and Roy Disney in 1923, as a child Walt was always drawing, he used it as a way to escape from the world. His first successful cartoon was a reel by the name of Alice Comedies. But it wasn’t until 1928 when Walt began to see real success, and he owed it all to a cartoon character that up to this day is world renown; Mickey Mouse, previously known as Mortimer Mouse. Mickey Mouse made his first appearance through cartoon by the name of Steamboat Willie. With the success of this cartoon, Walt was able to venture forth and develop full length motion pictures. His first one being Snow White and the Seven Dwarfs. As time went on, Disney continued to venture out and invest in new territories outside of...
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...MEXICAN PESO 1. Take a look at Mexico’s balance of payments over the past few years. Use the schedule I have attached – it is in the same format as we used to examine the U.S. balance of payments. What do the trade and current account balances suggest about the likelihood of a potential devaluation of the peso? Why? 2. What does the private capital account suggest about the need for a devaluation of the peso? Why? 3. What does the private transactions balance suggest about the valuation of the peso and whether a very large devaluation was imminent? Why? 4. Take a look at Exhibit 5 in the case – Mexico’s international reserves. What has happened to Mexico’s total foreign exchange reserves since 1970? How would you interpret this trend in terms of evaluating the strength or weakness of the peso in the foreign exchange market? Would you conclude that the peso was likely to be substantially devalued from this data? Why? 5. Take a look at Exhibit 7 and the forward discounts on the peso versus the dollar. On June 18, what did the market think the peso was likely to do over the next three months? On August 27, what did the market think the peso was likely to do versus the dollar over the next three months? Between June and August, what was the market saying about the magnitude and/or probability of a devaluation of the peso over the next three months? 6. Look at the commercial bank lending rates to prime borrowers in Exhibit 8. Based on these...
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...Chapter 3 International Financial Markets Lecture Outline Motives for Using International Financial Markets Motives for Investing in Foreign Markets Motives for Providing Credit in Foreign Markets Motives for Borrowing in Foreign Markets Foreign Exchange Market History of Foreign Exchange Foreign Exchange Transactions Interpreting Foreign Exchange Quotations Currency Futures and Options Markets International Money Market Origins and Development Standardizing Global Bank Regulations International Credit Market Syndicated Loans International Bond Market Eurobond Market Development of Other Bond Markets Comparing Interest Rates Among Currencies International Stock Markets Issuance of Foreign Stock in the U.S. Issuance of Stock in Foreign Markets Comparison of International Financial Markets How Financial Markets Affect an MNC’s Value Chapter Theme This chapter identifies and discusses the various international financial markets used by MNCs. These markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in foreign markets, and borrowing in foreign markets. Topics to Stimulate Class Discussion 1. Why do international financial markets exist? 2. How do banks serve international financial markets? 3. Which international financial markets are most important to a firm that consistently needs short-term funds? What about a firm that needs long-term funds? Critical debate Should firms that...
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...International Financial Management Assignment: Exchange Rate Risk Management As the world of business becomes increasingly global, multinational corporations (MNCs) are establishing the production and marketing operations in foreign countries. These MNCs face a variety of challenges. One of challenge faced by MNCs in foreign markets is fluctuations in currency exchange rates. Movements in exchange rates can cause instability in profit margins and significant losses to an MNC’s bottom line. Thus, exchange rate risk management is an integral part in MNC’s decisions about foreign currency exposure. Measuring and managing exchange rate risk exposure are important functions in reducing a MNC’s vulnerabilities from major exchange rate movements. In order to manage currency exchange rate risks, MNC often use financial instruments or currency derivatives. Required: 1. What are the types of exchange rate risks faced by the MNCs? 2. Understand the attempt for the use of foreign exchange derivatives (exchange rate risk management approaches) that can benefits the MNCs. Assignment required student to demonstrate professional skills in research, presentation and communication with full references and an appropriate bibliography. * Assignment should be completed using a word processor and should be no more than 10 pages, using Arial 12, single spaced. * Submission should be a single word document. * This is an independent assessment, and it is unlikely that students...
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...International Financial Management – 6E - 2011 Chapter 19 1. An effective cash management system should be based on a cash budget that projects expected cash inflows and outflows over some planning horizon. It provides for the orderly receipt and disbursement of cash. It also provides for funds organization, where cash shortages are covered by borrowing at the most promising rates and surplus funds are invested at the most beneficial rates. Within an MNC the complexity of the cash management process is compounded because the firm does business in a variety of currencies and the cost of foreign exchange transactions. is an additional measurement to be accomplished. 2. Under a centralized cash management system, the cash manager will have a global view of the cash necessities of the MNC. There will be less chance that funds will be misallocated, like, denominated in the wrong currency. Additionally, under a global view, transaction exposure for the MNC can be more professionally managed. A centralized system readily allows for investing excess cash at the most beneficial rates and borrowing to cover cash shortages at the most favorable rates. Under a decentralized system, the local cash manager is given more responsibility for managing the cash needs of the affiliate than under a centralized system. Consequently, the local cash management position serves as good training for higher level positions within the affiliate or MNC. Also, under a decentralized system, local bank...
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...ASEAN ECONOMIC COMMUNITY What is Asean Economic Community? More than a decade ago , the Asean leaders have agreed to form a single market in the area of southeast asia in the end of 2015 . It is conducted to increase as well as Asean foreign power could compete with China and India to attract foreign investment .Foreign capital investment in this region is needed to generate jobs and improve the welfare .With the Asean Economic Community, it will allow one country sells goods and services easily to other countries in all of Asia . AEC not only for the current trade goods or services , but also professional labor market , like a doctor , a lawyer , an accountant , and so on. Need to know that the formation of the Asean Economic Community is not a ‘gabare’ project, without a clear roadmap . AEC 2015 is a project of all members of Asean that has long been prepared with a strong vision . AEC 2015 is only one pillar of the 10 asean community realize the vision .The tenth of the pillars of the asean community vision are outward looking, economic integration, harmonious environment, prosperity, caring societies, common regional identity, living in peace, stability, democratic, dan shared cultural heritage. Opprtunity, challange, and risk for Indonesia with the emergence of AEC First , countries in south east asia will be used as a region of the unity of the market and the basis of production .With the creation of the unity of the market and production base it will make the flow...
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...The World Trade Organization (WTO) officially commenced on 1 January 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT). It is an organization that intends to supervise and liberalize international trade and to resolve trade disputes. Based on these objectives of WTO and our papers, we will divide our presentation into three parts. First, I will talk about economic sanctions and its impact on trade, then Lisa is going to impact of trade liberalization in developing countries, and finally Jessie will present developing country use of the WTO dispute settlement system. Economic sanctions was defined as economic pressures or punishments which are utilized by “sender countries” against the “target countries” And sanctions can be classified into three main types, which are “boycotts”, “embargoes” and “financial sanctions”, respectively. Economic sanctions are often directly associated with retaliatory action resulting from the conclusion of a WTO dispute settlement process (which will discuss further by my partner Jessie later). One example is the withdrawal of trade concessions by the United States in retaliation against the European Union’s banana regime, which was found to be inconsistent with WTO’s rule of trade liberalization. However, economic sanctions can also be adopted by countries under WTO provisions but which are unrelated to the WTO dispute settlement process. The legal basis of their justification under WTO rules...
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...International Business Management Program – Petra Christian University 2012 / 2013 Executive Summary Indonesia is known as one of the developing countries in South East ASEAN. Although Indonesia is still a developing country, it has also known as the largest economy in Southeast Asia and also a member of the G-20 major economies. At World Economic Forum on East Asia, Indonesia president said Indonesia will be in the top ten countries with the strongest economy within the next decade. In fact, nowadays Indonesia proves a very good track record in its economy. Finally, it attracts many countries to build strong relationship with Indonesia. One of the countries that have a strong relationship with Indonesia is United Kingdom. In 2006 Tony Blair, the prime minister at that time, met with Susilo Bambang Yudhoyono (SBY), the president of Indonesia, and agreed upon “the establishment of a regular Indonesia-UK partnership forum”. The first Indonesia-UK forum was held in London on 31 January 2012. This forum results in stronger relationship between two countries as SBY made a state visit to the UK on October 30 to November 3, 2012. In this report, we will discuss the economic behavior of both countries. We will also examine the relationship of both countries’ economic condition. Research for this report included data of both Indonesia and England, such as the currency exchange rate between two countries, balance of payment of each country, interest rate in Indonesia and UK, inflation...
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...International expansion International expansion provides a company with major growth opportunities. Though in many cases the expansion may result in lower margins than before, higher costs and lower profits. In order to avoid that, each company that plans to penetrate to overseas markets needs to be carefully managed and tough decisions have to be made. Taxation System One of the most popular reasons for international expansion of a company but simultaneously an issue that has to be over lapsed is the taxation system of the potential markets for expansion. A low corporate tax rate is always a tempting factor, but can also be deceptive. A complete market analysis should should also include the possibility of existence of state based taxes, withholding and consumption taxes, such us VAT (value added tax) before penetrating new markets. Some companies prefer to expand in tax havens and emerging markets where the taxation system is more attractive, but A&F have expanded to mature and developed markets already. Also, many companies “use” the base country’s tax regulation in order to “hide” income and avoid high taxation. Currency Risk When a company expands internationally there is also the possibility to be exposed to currency risk due to volatile currency rates or even currency restrictions and limitations. In order to avoid that risk companies usually try to effectively hedge their transactions internally in each country, with no adverse outcomes. Though, the currency risk...
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...Journal of International Business and Cultural Studies Human resource accounting and international developments: implications for measurement of human capital Maria L. Bullen Clayton State University Kel-Ann Eyler Wesleyan College Abstract Human Resource Accounting (HRA) involves accounting for expenditures related to human resources as assets as opposed to traditional accounting which treats these costs as expenses that reduce profit. Interest and contributions to growth in HRA have been evident in a number of countries. The strong growth of international financial reporting standards (IFRS) is an indication that the environment for international financial accounting is one that potentially encourages the consideration of alternative measurement and reporting standards and lends support to the possibility that future financial reports may include nontraditional measurements such as the value of human resources using HRA methods. Keywords: Human Resource Accounting, Human Capital, Intellectual Capital, International Accounting, International Financial Reporting, International Financial Reporting Standards Human Resource Accounting, Page 1 Journal of International Business and Cultural Studies Introduction Human Resource Accounting (HRA) involves accounting for the company’s management and employees as human capital that provides future benefits. In the HRA approach, expenditures related to human resources are reported as assets on the balance sheet as opposed to the...
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...Merging of numerous national generally accepted accounting principles with the International Financial Reporting Standards (IFRS) guarantees reliable and comparable financial information that will help investors in making the best investment decisions. Many countries and the International Accounting Standards Board plan to implement or converge with the International Financial Reporting Standards with a goal of comparing uniformed financial statements across countries. Having uniform standards for accounting worldwide not only would make it easier to compare financial statements, but it will coordinate the free movement of debt and equity capital worldwide. (Mukoro & Ojeka, 2011) Hofstede defined culture as, “the collective programming of the mind which distinguishes the members of one human group from another” (Gray, 1988). Hofstede went on to explain that “culture” is society at large or entire countries, while a “subculture” is used for a level of personal, professional, and organization. The amount of culture integration may vary from society to society, but most subcultures within a single society have similar characteristics (Gray, 1988). Hofstede identified four major types of societal/cultural characteristics. They are individualism versus collectivism, power distance, uncertainty avoidance, and masculinity versus femininity (MacArthur, 2006). In an individualistic society, individuals are independent of one another and self-sufficient whereas in a collectivist society...
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...Corporation We have audited the accompanying consolidated financial of Global Iron Corporation and its subsidiaries, which comprise the consolidated statement of financial position as at March 31, 2011, and the consolidated statements of income, other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant policies and other explanatory information. Management is responsible for the preparation and fair presentation of these consolidated statements in accordance with international Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud of error. Our responsability is to express an opinion onn these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards of Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated statements are free material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making...
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...IFAC International Auditing and Assurance Standards Board October 2002 Exposure Draft Response Due Date January 15, 2003 Reporting on Compliance with International Financial Reporting Standards Proposed International Auditing Practice Statement Issued for Comment by: The International Federation of Accountants This International Auditing Practice Statement (IAPS) of the International Federation of Accountants has been prepared by the International Auditing and Assurance Standards Board. It was approved for publication in September 2002. The exposure draft may be modified in the light of comments received before being issued in the form of an International Auditing Practice Statement The approved text of this Exposure Draft of the International Auditing and Assurance Standards Board is that published in the English language. Comments should be submitted so as to be received by January 15, 2003, preferably by e-mail, or on a computer disk or in writing. All comments will be considered a matter of public record. Comments should be addressed to: Technical Director International Federation of Accountants 535 Fifth Avenue, 26th Floor New York, New York 10017 USA E-mail responses should be sent to: EDComments@ifac.org Copyright © October 2002 by the International Federation of Accountants. All rights reserved. In order to achieve maximum exposure and feedback, IFAC encourages the reproduction of this publication in any format. International Federation of Accountants 535 Fifth...
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