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INT 620 Final Project Guidelines and Rubric

Overview The final project for this course is the creation of a Foreign Exchange Rate Risk Management in Multinational Enterprise in Business Strategy. You will examine how a multinational enterprise (MNE) uses foreign exchange risk management in its business strategy. The final project for this course consists of two major components. The first component is a Case Study Briefing document that focuses on a case study of foreign exchange risk management techniques currently used in a multinational enterprise (MNE). You will complete a briefing document in Module Five that focuses on the risk management techniques currently used in the MNE that you have chosen. Within this document, you will address the background and nature of the company’s business, the exposure to foreign exchange rate the company faces (i.e., through its accounts payable because it imports, through its accounts receivable because it exports, or through both accounts), and the tools or techniques the company currently uses to mitigate those risks (i.e., the company uses foreign debt to hedge the currency exposure, using derivatives such as currency swaps, futures, forwards, or options, for only a certain number of months to hedge only a certain percentage of the exposure, etc.). The second component is a Subsidiary Expansion or an Investment document that focuses on your research to expand this MNE into a new country. The country could be the country in which the MNE is currently located. Or, it could be any country that you are interested in expanding into. Within this document, you will address the capital structure of the new subsidiary and, if the company has debt financing, from where or which currency you would get the debt financing, and why. Once the company breaks even and starts making a profit, how would you manage the profit (i.e., need to invest for expansion for growth or because of restrictions on blocked funds, repatriate back to the mother company annually because you are not certain of the country and currency risk, etc.)? The project is divided into two milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules One and Five. The final submission will be in Module Nine. In this assignment, you will demonstrate your mastery of the following course outcomes:

 Analyze the fundamentals of foreign exchange risk management in mitigating corporate risk

 Interpret exchange rate movements when assessing the foreign exchange risk on the corporation by examining the institutional structure and mechanisms of foreign exchange markets

 Evaluate the financial and strategic impact of foreign exchange risk on the corporation for shaping future risk management and funding strategies

 Analyze how the dynamics of global capital markets shape the foreign exchange market for determining funding strategies and mitigating corporate risk

 Propose appropriate international capital budgeting strategies for managing multinational corporations’ international monetary relationships

Prompt Multinational corporations (MNEs) operate globally with several established subsidiaries in foreign countries. In this project, you will choose a MNE. You will then download the company’s annual report and analytically research the company to understand its current foreign exchange rate exposure, and the tools or techniques the company uses to mitigate the risks. Moreover, you will choose a country in which you will expand your presence and create a new subsidiary. You will need to identify your capital structure for your new subsidiary, as well as plan for your profit repatriation.

Resources to consider:

 Corporate Income Tax Rates Around the World, 2014

 KPMG: Corporate Tax Rates Table

 Country and Lending Groups

 World Trade Organization: Statistics Database

 U.S. Free Trade Agreements

 How Much Do U.S. Multinational Corporations Pay in Foreign Income Taxes?

 Global Financial Development

 International Debt Statistics

Specifically, the following critical elements must be addressed:

I. Company Proposal and Background: Provide a brief historical background on the firm you have selected, including the nature of its products or services.

II. Foreign Exchange Risk Management Analysis: Analyze the firm’s transactions, its foreign exchange rate risk exposure, and the tools the firm currently uses to mitigate the risk.

a) Explain the firm’s specific transactions, which are the accounts payable and accounts receivable, and how these transactions expose the firm to foreign exchange rate risk. Some firms could be exposed to both of the accounts because they import raw materials from foreign countries, add value to the product, and then re-export the product to other foreign countries. However, the net exposure must be only one account.

b) Identify the tools the firm currently uses in mitigating the foreign exchange rate risk. Occasionally, firms utilize more than one tool to hedge the risk. Some examples of tools are using foreign debt to hedge the foreign income, or using derivatives such as currency swaps, futures, forwards, or options.

c) However, most of the time, the company does not fully hedge its exposure to the foreign currency. You must explain the percentage hedge of its exposure as well as the hedging time length. Then, you must provide the potential risk to which the company could still be exposed from the foreign exchange rate.

III. Investments/Subsidiary Expansion: Choose a country to enter to create a new subsidiary. Determine the capital structure of your new subsidiary,

including the source of funding. a) Provide an explanation of the country in which you chose to create a new subsidiary. It is possible that the country you selected already has a

subsidiary of your MNE, which is fine.

b) Explain what the capital structure for this new subsidiary should look like. Should it be the same as the mother company’s? Why? If your subsidiary should have debt, determine the source of the debt and explain your rationale for choosing the source.

IV. Repatriations of Funds: Once your subsidiary turns a profit, evaluate how you will repatriate your profit. You will need to look into the country in which

the subsidiary is located and determine if it has any restrictions on blocked funds. If so, you must incorporate the findings into your final decision. Explain if you will repatriate your profit back annually on all, or only partially, and why.

Milestones Milestone One: Company Proposal and Background In Module One, you will submit your Company Proposal and Background short paper. The paper should include a brief historical background of your chosen firm’s business. It should include the nature of the firm’s products or services, as well as its geographical exposure and foreign exchange exposure. The format should be a one- to two-page Microsoft Word document. This milestone is graded with the Milestone One Rubric. Milestone Two: Foreign Exchange Risk Management Analysis In Module Five, you will submit your Foreign Exchange Risk Management Analysis. Your analysis should include foreign exchange risk net exposure and the tools or techniques your chosen company currently uses to mitigate the risk. In Milestone Two, you will also analyze the company’s hedging characteristics and other potential risks that might arise from this imperfect hedge. This milestone is graded with the Milestone Two Rubric. Final Submission: Final Report In Module Nine, you will submit your Final Report. It should be a complete, polished artifact containing all of the critical elements of the final project. It should reflect the incorporation of feedback gained throughout the course. This submission is graded with the Final Project Rubric.

Final Project Rubric Requirements of Submission: Written components of projects must follow these formatting guidelines when applicable: double spacing, 12-point Times New Roman font, one-inch margins, and discipline-appropriate citations. Eight to twelve pages are required, not including the cover page and resources. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions.

Critical Elements Exemplary (100%) Proficient (90%) Needs Improvement (70%) Not Evident (0%) Value

Company Proposal and Background

Meets “Proficient” criteria and the background information provided is substantiated by scholarly research

Provides a brief historical background on the firm selected, including the nature of its products or services, by providing examples

Provides a brief historical background on the firm selected, including the nature of its products or services, but does not provide specific examples

Does not provide historical background of the company selected

13

Foreign Exchange Risk Management

Analysis

Meets “Proficient” criteria and each transaction is justified by scholarly evidence

Analyzes the firm’s specific transactions: accounts payable and accounts receivable, and how these transactions expose the firm to foreign exchange rate risk by providing evidence of each transaction

Analyzes the firm’s specific transactions and the possible exposure to risk, but does not provide evidence of each transaction

Does not analyze the firm’s transactions or possible exposure to risk

13

Foreign Exchange Risk Management

Analysis

Meets “Proficient” criteria and the examples provided are a product of scholarly research

Identifies the tools the firm currently uses in mitigating the foreign exchange rate risk, by providing examples

Identifies the tools the firm currently uses in mitigating the foreign exchange rate, but not does provide specific examples

Does not identify the tools the firm currently uses to mitigate the foreign exchange rate

13

Foreign Exchange Risk Management

Analysis

Meets “Proficient” criteria and is substantiated by scholarly evidence

Analyzes the percentage hedge of the company’s exposure and the hedging time length by providing specific examples

Analyzes the percentage hedge and the hedging time of the company’s exposure, but the submission does not include specific examples

Does not analyze the percentage hedge and/or the hedging time of the company’s exposure

13

Investments/ Subsidiary Expansion:

Meets “Proficient” criteria and the explanation of the new subsidiary is substantiated by scholarly evidence

Provides an explanation of chosen country to create a new subsidiary by using specific examples for reasoning

Provides an explanation of the chosen country but does not use specific examples for reasoning

Does not provide an explanation of the chosen country selected for possible expansion

12

Investments/ Subsidiary Expansion:

Meets “Proficient” criteria and the outcomes selected are substantiated by scholarly research

Provides an explanation of the capital structure’s anticipated outcomes and source of funding. Submission includes a determined source of debt, if applicable, and provides specific examples of each finding

Provides an explanation of the capital structure’s anticipated outcomes and source of funding, and determines whether or not the company has any debts, but does not provide specific examples of each finding

Does not provide an explanation of the capital structure’s anticipated outcomes or the company’s source of funding; nor does the submission determine whether or not the country has any debt

13

Repatriations of Funds:

Meets “Proficient” criteria and the plan to repatriate is substantiated by scholarly research

Provides an explanation of how the group will repatriate the profit and identifies whether it should be done annually on all, or only partially

Provides an explanation of how the group will repatriate the company’s profit but does not identify whether it should be done annually on all, or partially

Does not provide an explanation of how the group will repatriate the company’s profit

13

Articulation of Response

Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-to-read format

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

10

Earned Total 100%