Research Report - Run Your Own MNC
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Research Report - Running Your Own MNC - 70 Marks
SUBMIT under SAFE ASSIGN. Your professor will assign your group a country.
In this report you will apply the concepts to be covered in chapter 1, 2, 3, 4, 6, 8,
11.
Instructions: -
This is not a business plan. Once you select the country, go to
Discussions, and post your group members’ names and country name.
I.
Provide COMPLETE answers to all the questions.
II.
Format of the report - complete answers in sequence. A title page, introduction,
conclusion of the report (3/4 page) and reference section along with intext
citations (APA format only) is a must.
III.
Late submission is subject to a deduction of 5% marks per day for five days. You
will not be allowed to submit the report after five days of due date.
IV.
Reports without an academic/reference section will receive a ZERO grade and
will be reported as academic integrity issue.
Cheating and Plagiarism:
Each student should be aware of the College's policy regarding
Cheating and Plagiarism. Seneca's
Academic Policy
will be strictly enforced.
To support academic honesty at Seneca College, all work submitted by students may be
reviewed for authenticity and originality, utilizing software tools and third party services.
Please visit the Academic Honesty site on
http://library.senecacollege.ca
for further
information regarding cheating and plagiarism policies and procedures.
Useful websites:- Yahoo finance, google finance, Bloomberg, MarketWatch, Morningstar,
Investopedia. You do not need to use any source that requires any payment or personal
information.
Components of the report
Marks
Title Page, Introduction, proper and complete
intext citation and reference section – APA
Style
And Conclusion at the end.
10 marks
Answers for questions
60 marks
Chapter 1
Study a country for your MNC
(parent company in US and is a public company)
to
conduct international business.
Your idea should focus on one country and one foreign
currency
, since many MNCs are focused in this manner when they are first created. You
should assume that you will receive foreign currency when selling your product.
Question 1 and 2 will help you to define your MNC idea:
1.
What is the product that you plan to sell? What foreign country do you plan to
target? State clear reason for targeting the country selected. 3 marks
2.
How will you sell the product in that country? Is there some evidence that
consumers in that country would buy this type of product? Will any expenses you
incur from producing the product be in dollars or some other currency? 3 marks
3.
What political risks do you observe in the country of study? Explain in detail. (Not
more than one page) 3 marks
4.
Study the financial risks present in the country. Go to the country’s central bank
website and study the trend of inflation and interest rates. Are there any other
financial risks present in the country? 3 marks
5.
Do you think this trend poses (from question 4) financial risk to your business in
that country? Based on the trend, would you like to reinvest the revenue
generated in the country or remit it to the US? Justify the reason provided. 3
marks
Chapter 2
Assessing Country Factors That Will Affect the Demand for Your Product
6.
Identify the factors that can affect the balance of trade between the United States
and the country that you targeted for your business. Explain any two main factors
that may affect the demand for your product. 4 marks
7.
Based on the country profile and risks, take a decision to establish business in
the foreign location through Foreign Direct Investment – Justify your answer.
Justify the selection made under FDI (if you decide to establish a subsidiary,
acquire a company there or start a joint venture, justify the reason) 3 marks.
8.
For FDI, how would you raise capital (debt or equity). You need to find
information on their existing debt and equity ratios in the balance sheet to justify
your answer. You can find this information on 10 – K form of the company. (
Since
this is a comprehensive document, read about debt and equity only and
leave the rest)
5 marks.
Chapter 3
Using the Foreign Exchange Market
9.
Explain how you will use the spot market for your business. 2 marks
10. 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? 3 marks
Accessing Recent Exchange Rates
11. Explain how the main foreign currency for your business has changed over last
four years with respect to dollars. Is this trend favorable or unfavorable to the
parent company? Provide a diagram/chart etc. for the trend. 4 marks
12. Using forecast formula in excel, prepare a forecast for 2023, 2024, 2025 and
2026 of foreign currency w.r.t dollar. Do you think this forecasted value of foreign
currency is favorable or unfavorable? Explain. 5 marks
Here is a quick video on how to use forecast function in excel
Forecast Function
in Excel
Chapter 4
Monitoring Movements in the Foreign Currency's Value
13. Have any of the key factors (inflation and interest rate) that affect the exchange
rate (discussed in chapter 4) affected the value of the foreign currency of concern
over last five years? Explain. You need to find the correlation between
inflation/interest rate in that country and the value of foreign currency to study
this. You may use the Correlation feature in excel. 5 marks
Here is a quick video on how to use correlation function in excel
Correlation
Function in Excel
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Chapter 6
Monitoring Central Bank Intervention
14. Go to Web site of the central bank in your target country. Determine whether this
central bank intervenes to control its currency in the foreign exchange market.
How has the central bank intervened to change the currency value during last
year? 4 marks
Chapter 8
International Fisher Effect and Purchasing Power Parity Theory
15. Complete the following table to find out percentage change in exchange rate
using PPP and IFE. Once you calculate percentage change, explain whether this
projected rate is favorable or unfavorable for your MNC. 4 marks
Home country - USA
Inflation
2019
Inflation
2020
Inflation
2021
Inflatio
n 2022
Projected
Inflation in 2023
(I
h
) = Average
Inflation
from
2019 - 2022
1.81%
1.23%
4.70%
8%
3.96%
Foreign Country- INDIA
Inflatio
n 2019
Inflation
2020
Inflation
2021
Inflatio
n 2022
Projected
Inflation
in
2023 (I
f
) =
Average
Inflation from
2019 - 2022
Percentage change
in the exchange rate
Using
formula
covered in Chapter 8
3.73%
6.62%
5.13%
6.70%
5.56%
= 1 + 0.0396
- 1
1 + 0.0556
= (-0.01515725*100)
= -1.52%
Home country - USA
Interest
rate
2019
Interest rate
2020
Interest rate
2021
Interest rate
2022
Projected
Interest rate
in 2023(I
h
) =
Average
Interest rate
from 2019 -
2022
1.55%
0.09%
0.07%
4.33%
1.51%
Foreign Country- INDIA
Interes
t rate
2019
Interest rate
2020
Interest rate
2021
Interest rate
2022
Projected
Interest rate
in 2023(I
f
) =
Average
Interest rate
from 2019 -
2022
Percentage change in
the exchange rate
using formula covered
in chapter 8
6.75%
5.4%
4.25%
5.90%
5.58%
= 1 + 0.0151
- 1
1 + 0.0558
= (-0.03854896*100)
= -3.85%
Chapter 11
16. Review recent 10- K form of the parent company to study hedging techniques
used by the company recently. Has this company used any hedging technique in
the past? Based on the previous answers around currency value, do you think
the parent company would require any hedging technique. If yes, explain the
hedging technique recommended. (
Note – 10 – K forms are very
comprehensive documents, just read about hedging techniques in the
document and leave the rest
) 6 marks.
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