Finance

#1. Your firm, Cheesis Fin Inc., is a British manufacturer of fine Stilton cheese. You believe you can sell your product effectively in France. You have recently agreed to sell a large container of cheese for 40,000 euros in six months’ time. The spot rate of exchange between euros and pounds is 1.6 euros/pound. The forward rate for a transaction in six months is 1.55 euros/pound.

Discuss the following questions/statements:
Explain how you might establish a forward contract to mitigate your transaction exposure in this instance. What will be your expected future cash flow in pounds?
If you expect the future spot rate in six months to be 1.5 euros/pound, will this influence your decision?
Suppose you decide to undertake the forward transaction, what happens if in four months you learn that your cheese has spoiled and you cannot deliver on your promised side of the transaction?
Why international trade is more difficult and risky from the exporter’s perspective than is domestic trade.
Do you think that a country’s government should assist private business in the conduct of international trade through direct loans, loan guarantees, and/or credit insurance?

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#2. There are several risks associated with operating a multinational corporation. Anycompany doing business in a foreign country has to consider political or country risks. Especially if the target country has a relatively unstable political environment, financial managers must incorporate the potential risk into the cost of the project.

Discuss the following statements/questions:
Given the risks associated with an MNC, discuss why a firm would choose to operate as an MNC.
Describe political risk on a macro and micro level and provide examples of each.
Why is the repatriation of cash flows from an overseas project considered critical?

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