Overview of International Business Paper
A few paragraphs covering the following:
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:
- What is the product that you plan to sell?
- What foreign country do you plan to target?
- How will you sell the product in that country? (i.e., through a distributor? by mail?)
- Is there some evidence that consumers in that country would buy this type of product?
- Do you need to purchase supplies or to hire labor?
- Will any expenses you incur from producing the product be in dollars or some other currency?
Key Factors Impacting Demand
A few paragraphs covering the following:
- Identify and explain 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.
- Which of these factors is likely to be most important in affecting the demand for your product?
- Determine whether the product you plan to sell is already one of the main exports to that country.
- Explain the import controls set by that country’s government. Determine whether your business would be affected by trade regulations.
Currencies and Strategy
A few paragraphs explaining the following:
- What currency is the home currency for your business?
- Explore the volatility in the currency and explain how volatile (or not volatile) the currency is
- Explain how you will use the spot market for your business.
- Based upon your review of the currency, start to determine a currency strategy for your company (e.g. will you need forward contracts, put options, call options, etc.) Explain.
- What are the key factors that influence your countries currency? Explain the two most impactful factors
Currencies and Impact of Hedging
Include a few paragraphs explaining the following:
Include the current spot rate and 1-year chart of spot rates for each currency. For the one year, you can copy online.
- What key factors likely affect the value of the foreign currency of concern over time?
- Using Currency Futures and Options
- How can you use currency futures to hedge the exchange rate risk of your MNC?
- How can you use currency options to hedge the exchange rate risk of your MNC?
- Go to www.cmegroup.com. Determine the prevailing futures price of the main foreign currency for your business. Go to www.oanda.com and determine the prevailing spot rate. What is the discount or premium of the futures price?
Futures, Options and Hedging Strategy
A few paragraphs containing the following:
- How can you use currency futures to hedge the exchange rate risk of your MNC?
- How can you use currency options to hedge the exchange rate risk of your MNC?
- Go to www.cmegroup.com. Determine the prevailing futures price of the main foreign currency for your business. Go to www.oanda.com and determine the prevailing spot rate. What is the discount or premium of the futures price?
Monitoring Central Bank Intervention
A few paragraphs containing the following:
- How can your business be affected if the Fed attempts to strengthen the dollar in the foreign exchange market?
- If the Fed decides to weaken the dollar, how will your business be affected?
- How can indirect central bank intervention affect your business even if there is no impact on exchange rates?
- Go to www.bis.org/cbanks.htm to access the Web site link for the central bank in your target country. Determine whether this central bank intervenes to control its currency in the foreign exchange market.