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Assignment: Foreign Exchange Strategy PowerPoint Presentation

Assignment: Foreign Exchange Strategy PowerPoint Presentation

 

Volatility in the foreign exchange markets greatly impacts corporate  investment decisions. This week you are examining the factors that  determine exchange rates and the ways in which exchange rates impact  profitability.

To prepare for this Assignment, keep this week’s readings  in mind. Then, read the two related scenarios (1 and 2) below, and begin  formulating answers for each question or problem posed.

  1. Assume you are a U.S. company taking delivery of 10  million euros worth of supplies from a European company. You placed the  order 6 months ago. At that time, you had the following options:
     
    • Wait until today to purchase 10 million euros to pay  your supplier. The following link takes you to data on current and past  exchange rates: http://www.x-rates.com/
    • Negotiate a forward market contract (both fixed and one with options) with your bank.
    • Use the Chicago Mercantile Exchange (CME) futures  market for delivery of 10 million euros at the delivery date closest to  but still before today’s date. Use the following link to access futures  market quotes: http://www.cmegroup.com/trading/fx/

      Evaluate each of the options described above and, knowing  what you know now, can you identify which would have been the best one  for you? In your evaluation, determine the total cost (including any  fees) to you in dollars of each option and the timing of the payment.  Also discuss the exchange rate risks inherent in each of the options.  Which option was riskiest? Which was the least risky? Be sure to justify  your responses.

  2. As you take delivery of your supplies, you negotiate with  the same supplier for a delivery of another 10 million euros worth of  the product 6 months in the future. Based on your analysis for part one  and information available from the FX Futures Quotes and other sources,  decide which currency strategy you will use. Support your answer,  including the following information:
     
    • A chart or table showing past fluctuations in the euro–dollar exchange rate—how volatile is this exchange rate?
    • A chart or table showing futures market quotes for the  euro–dollar exchange rate over the period between now and the next 6 to 9  months—what is the expected direction of change in the exchange rate  predicted by traders?
    • A discussion on the specific costs associated with using futures or forward markets versus spot market

      In addition, discuss how the company’s strategy may be  influenced by its attitude toward risk. Does the company have the  resources needed to absorb currency losses? Is the price of the product  sold by the company locked in or will it be able to make adjustments  based on changes in costs? Please be sure to justify all answers.

Prepare a 6- to 10-slide deck PowerPoint presentation  summarizing your results and recommendations, similar to one you would  present to a company’s management. Be sure to include your numerical  results and tables and/or charts in the presentation, as well as your  rationale for your recommendations.

General Guidance on Assignment Length:  Your PowerPoint assignments will typically be a deck of 5 to 20 slides,  excluding a title page and references. Refer to the Week 3 Application  rubric for grading elements and criteria. Your Instructor will use the  rubric to assess your work.

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