Question 1. Defend why, or why not financial managers should apply currency risk techniques.
Question 2. Design how MNEs can diversity financing.
Question 3. Assess the determinants of operating exposure.
Question 4. Examine the re-measurement and translation process.
Each question needs to be 200 words and the book that I am using is Fundamentals of Multinational Finance by Moffett, Stonehill, & Eiteman.© BrainMass Inc. brainmass.com October 25, 2018, 10:24 am ad1c9bdddf
Please find the explanation regarding the given questions as below. I hope this response will help you to develop your understanding related to the given topics of International Finance.
Financial manager should apply the currency risk techniques because there are lots of advantages of using currency risk techniques. It is a form of potential insurance that can be used by the financial manager to protect the capital from negative happening in global market. Similarly, it also helps to ensure the consistency of cash flows and also makes consistency in production process. By using these techniques, financial manager can manage capital investment because it assures market price for hedgers and protects them against the rising operating costs in foreign nations (Garham, 2014). It enables to make concrete plans on capital formation and expansion by reducing the loss of foreign investment due to currency rate fluctuations. It is also beneficial for the financial manager to use the currency risk techniques because increasing volume of cross-border activity coupled with rising currency volatility bound the financial manager of different MNC companies to use these techniques. It is also helpful to get limits for potential losses without limiting potential gains and for specific earning (Moffett, et.al, 2014). Along with this, it will also enable the financial managers to ensure the protection of cash flows from its operations in foreign countries.
Diversity in finance is essential because greater diversity provides significant capability to an organization. Therefore, in order to ...
This response explain why, or why not financial managers should apply currency risk techniques. Also, it is discussed how MNCs can diversity financing. Further, determinants of operating exposure are assessed.
International Finance - Fresh Juices, Inc.
As a senior financial analyst for Fresh Juices, Inc., the largest fresh fruit drink company in the United States, you are a key player in corporate finance for the business. You are consulted on major capital projects, prepare analysis for executive officers, present material at senior management meetings, and play the overall role of advisor to executive and senior officers.
Fresh Juices, Inc. has witnessed its sales grow from US$1 million in the first year of operations in 1970 to US$1.5 billion last year. The company started as a regional supplier of fresh fruit drinks in California and initially expanded in the West. However, over the last 15 years, the company has moved further east, north, and south. Today, the company's lines of products can be found on the shelves of any major grocery store in the U.S., and its market share of fresh fruit drinks is 80% in the United States.
The Drive to Expand Internationally
On a recent trip to Canada and Latin America, Hector Vasquez, the company's chief executive officer (CEO), noted the lack of fresh fruit drinks in the supermarkets. When he returned, he brought in all of his senior officers and said, "I want to be international in a year. We have a great product, and I think we can compete effectively in North and South America, Europe, and Asia. My recent travels confirmed my suspicion that fresh fruit drinks like ours do not exist outside the U.S.," he said. "Furthermore, with the U.S. market growing at 2% annually, we need to find other markets that have the potential to grow at a faster pace."
Mr. Vasquez asked your boss, Bonita Galloway, to head up the team to do the analysis on international opportunities and report back to him in the coming weeks. With that, he dismissed the meeting, and the senior officers left.
The U.S. business was so mature and was not growing rapidly, so Ms. Galloway thought international expansion might be just what the company needed. She was concerned that the company's profit margins would start to be squeezed in the company years if the firm did not find other sources of revenue growth. This would force the company to make drastic cost cuts and could potentially impact Fresh Juices' ability to compete.
Given your role in the organization, Ms. Galloway immediately thought of you as the finance lead on this project. She called you to her office to discuss what happened at the meeting with Mr. Vasquez.
After briefing you, she said, "I want you to be the primary contact on this. I will need you to work closely with the various departments that will be involved with this effort. Specifically, I need to lean on your analytical capabilities because we need to make objective decisions. I need you to give me the facts-not what you think I want to hear. This is important to the future of the company. I know I can count on you."
Task Name: Phase 3 Discussion Board
Deliverable Length: 4-6
Details: One senior officer believes the best way to manage exchange rate exposure is to do nothing. She believes that currencies are unpredictable. She believes trying to manage currency risk is useless and a waste of money because of this unpredictability. She writes you an e-mail stating her position and asked you for your thoughts.