Case Work

Cesar Araujo

Pavel Castillero

Keily Berrios

Jonathan Sylvain

Assignment Requirements

1. For your country/group: Who are its major trading partners? Which countries are the top five destinations of your country’s exports? Which countries are the top five origins of your country’s imports? A good reference here is the www.wto.org site where you can access trade profiles (Documents, data and resources>statistics>statistics database>trade profiles>select the name of your country to view its profile.

Answer addressed in the currency worksheet > Requirement 1

2. What are the currencies of your selected country and its partners? Briefly describe these currencies and their classification in a particular exchange rate regime i.e. hard or soft peg, floating, etc. (Use the imf.org site).

Answer addressed in the currency worksheet > Requirement 3A

3. How did your country’s currency change against the dollar and the currencies of its other partners in the last two years (from 9/16/14 to 9/16/15 and 9/16/16)? To answer these questions, visit the www.oanda.com site (Currency Converter); using the rates that you find in this site complete the currency worksheet for your currency versus the US dollar and the currencies of its major partners. As examples, I have included the calculations for the Brazilian Real versus the US Dollar and versus the Argentine Peso, which is the currency of one of Brazil’s major trading partners.

Answer addressed in the currency worksheet > Requirement 3B

4. Search for multinational companies that operate in your country of choice. I have listed some companies below, which might be operating in your country. You will need to verify that they actually do. You can also choose other companies not listed here. Each member of your group needs to select a different company. Go to the websites of your selected companies and examine their international business activity. What percentage of revenues did these companies derive from their foreign operations in the last two most recent fiscal years? Is their foreign activity increasing or decreasing? What explanations, if any, has the company offered for this increase or decrease in their foreign activity? Where are the headquarters of each company located? Is the recent trend in the value of your country’s currency that you saw in #3 expected to have a favorable or unfavorable impact on your selected company? Why do you think so? You should be able to find the required data in each company’s financial statements, which you can locate in their websites in the investor relations sections (SEC filings -10K reports). 

Answer addressed in the currency worksheet > Requirement 4

5. Consider your country and its trading partners. Based on your review of the Economist, the Wall Street Journal, the Financial Times and other similar periodicals, which of these countries is having currency problems? List at least one country per group member. What are the causes of those currency problems? If you cannot find any current problems then search and summarize the most recent currency problems for your country and its partners.

Answer addressed in the currency worksheet > Requirement 5

6. Search for any recent currency interventions by the central banks of your country and its trading partners. What reasons did the monetary authorities give for these interventions? List at least one central bank intervention per group member. How much money was expended during these interventions? Summarize your findings. You can find stories of these interventions by searching the resources mentioned earlier or the websites of the central banks linked through the BIS website.

Answer addressed in the currency worksheet > Requirement 6

7. Foreign exchange risk management: For the multinational corporations that you selected and based on their most recent 10K reports, what is the answer to the following: a) What is your company’s approach to foreign exchange risk management? Does your company hedge? b) What type of currency exposure is your company hedging? c) What hedging techniques are they using?

General Electric’s approach to foreign exchange according to their most recent 10k report is that they are disciplined enough to ensure the right execution for their demands in favor to their strategic objectives. They limit themselves only to risk that is going to be compensated in the future. General Electric thoroughly examines risk at an individual level, and also, analyzes accrued risk at the customer, industry, geographic, and collateral-type level.

General Electric often hedges the risk of fluctuations in foreign currency exchange rates, interest rates and commodity prices. Their policy is to minimize currency exposures and operate with practical currencies or use protection from hedge strategies. Their hedging techniques include derivatives to analyze their currency exposure.

Microsoft is exposed to all types of foreign financial risk, such as interest rates, credit risk, prices, etc. With a portion of these risk Microsoft uses hedging to help them with all of the risk, some of the currency’s they hedge are the Japanese Yen, Euro, British pound, and Canadian dollar. Microsoft uses hedging to benefit them from having a bad investment or even from having a good investment, hedging is used to help. Microsoft uses different techniques for hedging, one of the techniques are using foreign exchange forward contract that are designed to have a fair value when hedging. With this technique Microsoft, has sold over a total $407 million worth of contracts in the past recent years.

Coca-Cola Company knows that the global economy remains challenging, singling out the slowdown in China, its volatility in the Middle East and weakness in the commodity dependent on economies of Australia, Brazil and Russia. Coca-Cola hedges its exposure to major foreign currencies like dollars, euro and yen, but it is too expensive to buy hedges for volatile emerging-market currencies.

Coca Cola HBC, the beverage multinational’s Russian bottler and distributor has seen its share price plummet by nearly 30 percent in past years, but they know that Russia is a big market to be ignored and they have to find the ways to handle the globalization and keep working in this country.

...