FIN/711 v7
Signature Assignment: Estimating Global Risk in Global Decisions Analysis
FIN/711 v7
Page 2 of 2
Signature Assignment: Estimating Global Risk in Global Decisions Analysis
Suppose you are the Director of Finance at a multinational corporation (MNC) thats headquartered in the U.S. The cost of capital for this MNC is 12.2%.
You are examining this data that you received from the affiliates. The analyst in your department has prepared the tables below that show cash inflows and cash outflows in local currencies and exchange rates. Assume the data is for Quarter 4, 2004. Use this data to assess currency risk.
Table 1: Net Cash Inflows and Outflows in Local Currency and US Dollars for 2004
Currency
Total Inflow (Local Currency)
Total Outflow
Net Inflow/Outflow (Local Currency)
Expected Exchange Rate
Net Inflow/Outflow (US $)
British Pounds (£)
17,000,000
7,000,000
10,000,000
1.5
15,000,000
Canadian Dollars (C$)
12,000,000
2,000,000
10,000,000
0.8
8,000,000
Swedish Krona (SK)
20,000,000
120,000,000
-100,000,000
0.15
-15,000,000
Mexican Peso (MP)
90,000,000
10,000,000
80,000,000
0.1
8,000,000
Table 2: Range of Net Cash Inflows and Outflows for Quarter 4, 2004
Currency
Total Inflow (Local Currency)
Expected Exchange Rate
Net Inflow/Outflow (US $)
British Pounds (£)
10,000,000
1.40
1.6
14,000,000
16,000,000
Canadian Dollars (C$)
10,000,000
0.79
0.81
7,900,000
8,100,000
Swedish Krona (SK)
-100,000,000
0.14
0.16
-14,000,000
-16,000,000
Mexican Peso (MP)
80,000,000
0.06
0.11
4,800,000
8,800,000
Table 3: Cash Flows for Past 5 Years from Affiliates in 4 Countries
Currency
Net Inflow/Outflow (Local Currency)
Year 1
Net Inflow/Outflow (Local Currency)
Year 2
Net Inflow/Outflow (Local Currency)
Year 3
Net Inflow/Outflow (Local Currency)
Year 4
Net Inflow/Outflow (Local Currency)
Year 5
British Pounds (£)
10,000,000
20,000,000
60,000,000
50,000,000
10,000,000
Canadian Dollars (C$)
10,000,000
13,000,000
135,000,000
135,000,000
160,000,000
Swedish Krona (SK)
-100,000,000
-120,000,000
-111,000,000
140,000,000
110,000,000
Mexican Peso (MP)
80,000,000
76,000,000
86,000,000
96,000,000
55,000,000
Write a 1,050- to 1,400-word analysis that addresses the following questions based on the data provided in the tables above:
1. In Table 2, which currency do you think is contributing the most risk? Why? Explain.
2. In Table 2 and Table 3, what approaches would you use to estimate exchange rate risk?
3. Will the approach be different for Table 2 versus Table 3? Why? Explain.
4. Is it necessary to look at these risks at all? Why or why not? Explain.
Cite at least 2 peer-reviewed sources to support your analysis.
Format your assignment according to APA guidelines.
Submit your assignment.
Copyright 2020 by University of Phoenix. All rights reserved.
Copyright 2020 by University of Phoenix. All rights reserved.
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