FIN 418 Electric Scooters in Germany Project

DescriptionFIN418
Spring 2023
Running Your Own MNC
Developing Your Idea
Create an idea for your own MNC to conduct international business. Your idea should
be simplified to the degree that you could possibly implement it someday. However,
your idea should also be sufficiently creative to be successful if done properly. Your
idea should focus on one country and one foreign currency, since many MNCs are
focused in this manner when they are first created. So that you can recognize the
issues regarding exchange rate risk that are discussed throughout this text, you should
assume that you will receive foreign currency when selling your product. Your idea
should be for a small MNC instead of a large MNC because even most large MNCs
began as small firms. The following questions will help you define your MNC idea:
1. What is the product that you plan to sell?
2. What foreign country do you plan to target?
3. could you identify any cultural issues that affect how your MNC operates and
describe how these issues affect business decisions?
4. How will you sell the product in that country? (i.e., through a distributor? by
mail?)
5. Is there some evidence that consumers in that country would buy this type of
product?
6. Do you need to purchase supplies or to hire labor?
7. Will any expenses you incur from producing the product be in dollars or some
other currency?
Assessing Country Factors That Will Affect the Demand for Your Product
1. Identify the factors that can affect the balance of trade between the United
States and the country that you targeted for your business. Explain how each
of these factors may affect the demand for your product.
2. Which of these factors is likely to be most important in affecting the demand
for your product?
Accessing Trade Data
Determine whether the product you plan to sell is already one of the main exports to
that country.
Accessing Import Controls
Review the import controls set by that country’s government. Determine whether your
business would be affected by trade regulations.
Using the Foreign Exchange Market
1. Explain how you will use the spot market for your business.
2. What bank do you plan to use to exchange the foreign currency received for
dollars? What is the bid/ask spread on a recent quotation by that bank? (Call
the bank to obtain quotations.)
3. Will you possibly need the forward market? Explain.
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FIN418
Spring 2023
Accessing Recent Exchange Rates
Go to www.oanda.com. Click on “Currency Tools”, scroll down to “Historical Currency
Converters”, and then click on “Currency Trends”. Explain how the main foreign
currency for your business has changed over the last month, the last three months,
and the last year. If the link is not working, you could use any other website.
Monitoring Movements in the Foreign Currency’s Value
1. What key factors likely affect the value of the foreign currency of concern over
time?
Monitoring Exchange Rate Trends
Use a business periodical or the Internet to determine how the value of the foreign
currency of concern has changed in each of the last five weeks. Does it appear that
there is a trend over the last five weeks? If you believed that the currency’s value
would continue following the recent trend, would it appreciate or depreciate in the near
future?
Recognizing Exposure to Exchange Rate Risk
Recall that when you created your business idea, it was assumed that your receivables
would be denominated in the foreign currency of concern upon the sale of your
products.
1. Describe your exposure to exchange rate risk. That is, describe the exchange
rate conditions affecting the performance of your business.
2. Is your business subject to transaction exposure? Economic exposure?
Translation exposure? Explain why your business is or is not subject to each of
these types of exposure.
Denominating Receivables in your own currency
Recall that it was assumed that your receivables would be denominated in the foreign
currency of concern. For this question only, assume that you could switch your pricing
policy so that the receivables would be denominated in your own currency instead of
the foreign currency.
How would this switch affect the transaction exposure and the economic exposure of
your business? Explain the conditions that could still cause the performance of your
business to be affected by exchange rate movements.
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