University of Houston-VictoriaFINC4325 – International FinanceCourse Project Running Your Own MNCI. The purpose of the project:This project allows you to create a small international business and apply key concepts from theselected chapters to run the business throughout the second half of the school term. Thequestions listed below are for your reference. That means you donât need to organize theproject by answering all the questions one by one because this is a project report, not an essayquestions test. You are only required to discuss the major factors which may have a significantimpact on the operation of your MNC.The project accounts for a total of 200 points. Total up to 30 double-spaced pages is goodenough. Your project report should be well-organized and typed in a WORD file (Office 2003 orlater versions). Attach the tables and/or worksheets/graphs with your project. The style and organization of the project account must meet a certain style, includinglisting the references that you cite in your project. A preferred style is listed at the end ofthis instruction. (10 points)Other writing styles are also acceptable. Some of the writing styles for project research reportscan be checked here:https://www.bing.com/search?q=school%20project%20report%20writing%20style&qs=n&form=QBRE&pq=school%20project%20report%20writing%20style&sc=0-35&sp=-1&sk=&cvid=059C7BA1DF07485684F279ED2ECF6160 II. The outline for the project: 1. Executive Summary (10 points)Summarize the major findings from running your own MNC. It should cover the purpose of theproject, what are the major findings, and the conclusion. Discuss on the strengths and limitations inyour project.2. Chapter 1-2 (30 points)Developing Your IdeaCreate an idea for your own MNC to conduct international business. Your idea should besimplified to the degree that you could possibly implement it someday. However, your ideashould also be sufficiently creative to be successful if done properly. Your idea should focus onone country and one foreign currency, since many MNCs are focused in this manner when theyare first created. So that you can recognize the issues regarding exchange rate risk that arediscussed throughout this text, you should assume that you will receive foreign currency when1 selling your product. Your idea should be for a small MNC instead of a large MNC because evenmost large MNCs began as small firms. The following questions will help you define your MNCidea:1. What is the product that you plan to sell?2. What foreign country do you plan to target?3. How will you sell the product in that country? (i.e., through a distributor? By mail?)4. Is there some evidence that consumers in that country would buy this type of product?5. Do you need to purchase supplies or to hire labor?6. Will any expenses you incur from producing the product be in dollars or some othercurrency?Assessing Country Factors That Will Affect the Demand for Your Product1. Identify the factors that can affect the balance of trade between the United States andthe country that you targeted for your business. Explain how each of these factors mayaffect the demand for your product.2. Which of these factors is likely to be most important in affecting the demand for yourproduct?Accessing Trade DataDetermine whether the product you plan to sell is already one of the main exports to thatcountry.Accessing Import ControlsReview the import controls set by that country’s government. Determine whether your businesswould be affected by trade regulations.3. Chapter 3-5 (40 points)Using the Foreign Exchange Market1. 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 obtainquotations.)3. Will you possibly need the forward market? Explain.Accessing Bid/Ask RatesGo to http://sonnet-financial.com/rates/full.asp. Determine the prevailing bid and ask exchangerates for the currency that you will use for your business transactions.Accessing Recent Exchange RatesGo to http://www.oanda.com. Click on FXTrends. Explain how the main foreign currency foryour business has changed over the last month, the last three months, and the last year.Using Currency Futures and Options1. How can you use currency futures to hedge the exchange rate risk of your MNC?2. How can you use currency options to hedge the exchange rate risk of your MNC?Accessing Futures Quotes2 Go to http://www.cme.com/. Determine the prevailing futures price of the main foreigncurrency for your business. Go to http://www.oanda.com and determine the prevailing spotrate. What is the discount or premium of the futures price?4. Chapter 6 (20 points)Monitoring Central Bank Intervention1. How can your business be affected if the Fed attempts to strengthen the dollar in theforeign exchange market?2. If the Fed decides to weaken the dollar, how will your business be affected?3. How can indirect central bank intervention affect your business even if there is noimpact on exchange rates?Accessing Central Bank InformationGo to the Web site link for the central bank in your target country. Determine whether thiscentral bank intervenes to control its currency in the foreign exchange market.5. Chapter 7 (20 points)Assessing Spot and Forward Rates1. Obtain a quotation for the spot rate of the foreign currency (that you will receive fromyour business) from the bank where you intend to conduct your foreign exchangetransactions. Then, obtain a quotation for the spot rate of the foreign currency fromanother bank. Does it appear that the spot rates are aligned across locations at a givenpoint in time?2. Obtain a quotation for the one-year forward rate of the foreign currency from the bankwhere you intend to conduct your foreign exchange transactions. Then, use a businessperiodical to determine the prevailing one-year interest rates in the United States andthe foreign country of concern. Does it appear that interest rate parity exists?3. Review the data on forward rates from The Wall Street Journal or another source todetermine whether the foreign currency of concern typically exhibits a discount or apremium. Then review data on interest rates to compare the foreign country of concernand the U.S. interest rates. Does it appear that the forward rate of the foreign currencyexhibits a premium (discount) when its interest rate is lower (higher) than the U.S.interest rate, as suggested by interest rate parity?6. Chapter 8 (10 points)Determining Whether IFE HoldsUse The Wall Street Journal or another data source to record the interest rate differentialbetween the interest rate of the foreign country in which you plan to do business and the U.S.rate over the last five or so quarters. Then, review the exchange rate percentage change in theforeign currency of concern over each of those corresponding quarters to determine whetherthe international Fisher effect (IFE) appears to hold over those quarters for that currency.7. Chapter 9 (10 points)Monitoring Exchange Rate Trends3 Use a business periodical or the Internet to determine how the value of the foreign currency ofconcern has changed in each of the last five weeks. Does it appear that there is a trend over thelast five weeks? What is the mean percent-age change over these weeks? If you believed thatthe currency’s value would continue following the recent trend, would it appreciate ordepreciate in the near future?8. Chapter 10-12 (40 points)Recognizing Exposure to Exchange Rate RiskRecall that when you created your business idea, it was assumed that your receivables would bedenominated 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 rateconditions affecting the performance of your business.2. Is your business subject to transaction exposure? economic exposure? translationexposure? Explain why your business is or is not subject to each of these types ofexposure.Hedging with Forward Contracts1. Given your exposure to exchange rate risk, explain how you could use forward contractsto hedge.2. Explain how you could use currency options to hedge your exposure.3. Review the currency options quotations for the foreign currency of concern in The WallStreet Journal, or from an Internet source, and determine the premium that would bepaid to be able to sell the currency at today’s spot rate. (If the currency option data arenot available for the currency of concern, skip this question.)Using Futures QuotesGo to http://www.cme.com/. Determine the prevailing futures price of the main foreigncurrency for your business. Go to http://www.oanda.com and determine the prevailing spotrate. Would you hedge any transactions for your business based on the futures price relative tothe spot rate.Denominating Receivables in U.S. DollarsRecall that it was assumed that your receivables would be denominated in the foreign currencyof concern. For this question only, assume that you could switch your pricing policy so that thereceivables would be denominated in dollars instead of the foreign currency. How would thisswitch affect the transaction exposure and the economic exposure of your business? Explain theconditions that could still cause the performance of your business to be affected by exchangerate movements.9. Summary (10 points)Summarize the major conclusions of running your own MNC. Discuss the competitive status ofyour MNC and also the major risk/problems of the company. Discuss the implications andlimitations of your management strategies. Also list the references that you cite in your project. 4 A Preferred Project Report Format 1. Report body requirements:18.104.22.168. Cover page. It lists the title of the project, student name, and semester/year.Executive Summary. It is on a separate page.Contents. It lists all numbered pages (except the cover page and abstract page).Main body. It should list all the major works you have done for the required items. If you chooseto put your tables and/or graphs in the Appendices, you should refer to which table or graph youare talking about.5. Reference. List all major reference sources.6. Appendices. List all your tables and graphs. For reference convenience, give a title to eachseparate item, such as Table 1.2. Typesetting requirements:22.214.171.124.5. Use 11 font size. Time New Roman is preferred.Double space between lines.Number all pages, but the cover and abstract pages.One inch on all sides.Total page numbers: 25. (No more than 35 pages) 5
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