Answer All 9 questions
Short Answer 1-8[10 points each with each about 3/4 - 1 page double-spaced]:
1. If the spot rate for Swiss Francs versus US Dollars is one SF equals 1.05 US$, and the annual interest rate on fixed rate one-year deposits of SF is 0.5% and for US$ is 1.75%, what is the nine-month forward rate for one SF in terms of dollars [$]? Assuming the same interest rates, what is the 18-month forward rate for one US$ in SF? Is this a direct or an indirect rate? If the forward rate is an accurate predictor of exchange rates, in this case will the SF get stronger or weaker against the US dollar? What does this indicate about the market's inflation expectations in Switzerland compared to the US?
2. On January 2d, 2017, Boeing expects to send 5 787s from its plant in Seattle, WA to Swiss Air, which it will sell on 270-day terms at $125 million each. ThusBoeing will receive payment from Swiss Air on September 27th, 2017. Assuming Swiss Air wants to hedge against a strongerUS$ using a forward contract with a Swiss bank in the US, what is the amount of SF they should pay the Swiss Bank for dollars to pay Boeing on September 27th, 2017 given the nine month forward rate for one SF in terms of dollars that you calculated in problem one? What are two other ways Swiss Air might hedge its US$/SF exposure?
3. In his book Manias, Panics and Crashes (see the Introduction and Chapters posted on the class website under Cases - Kindleberger pdf #1 & 2) Charles Kindleberger explains the three stages of how a financial crisis develops and evolves over time. Please briefly explain these stages and how the Icelandic, Mexican and Russian Financial Crises as presented in the Hill text and the class case presentation follow this economic pattern or paradigm.
4. Microsoft, whose global sales are generally dollar denominated, finds it has excess cash of $35,000,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.55% or a three-year SF denominated deposit paying 1.55% since it expects the SF to appreciate 0.95% per annum against the dollar over the next three years. Using cash flow analysis determine the best currency option in whichMicrosoft should invest. Be sure to show your complete calculations of the annual return on each investment at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rate. Would your answer change if Microsoft revised its SF outlook to appreciate 1.2% per year? Show all calculations!!!
5. Country A has 24000 units of labor and can produce 2 goods, manufactures and food. A's producers take 3 units of labor to produce one unit of manufactures and 2 units to produce one unit of food. Country B has 36000 units of labor and takes 6 units of labor to produce one unit of manufactures and 1 unit to produce one unit of food. What is the price of manufactures in terms of food at which A and B would respectively supply manufactures? What would A export in Adam Smith's world? What is the amount it could supply?
6. Companies can benefit from lowering corporate income taxes globally. Explain how Apple has done this and how some US pharmaceutical firms are using M&A to achieve similar results. Do you think Mr. Trump's proposed penalty for this is appropriate?
7. Explain how Timberland developed global supply chain problems and then used IT to solve them [see case posted on class website] and compare this with Boeing's outsourcing strategy.
8. Both Ford and Phillips Electric have faced major changes globally in their markets and industry structures with the emergence of new competitors, new markets and new technologies. Historically both companies pursued a multi-domestic approach to managing their global operations but have had to adapt given new circumstances. Compare the two companies responses to these developments and why one seems to be more successful in making the transition to a transnational approach.
9. Essay (20 points - about 3 pages double spaced):
Large firms operating globally develop organizational strategies based on the type of industries and businesses in which they compete. Explain the four basic international business organization strategies discussed in the course and the Hill text. Then identify which of the four strategies WalMarthas used over time and the one it is now trying to implement. After identifying the strategies it has used over time and is now trying to implement please describe and explain how and why it is pursuing the strategy it has currently selected in order to penetrate certain international markets and meet global competition in its industry.
You should comment on the success and/or failure of its various approaches and implementation in specific countriesand how it has modified its organization, supply and marketing over time given its experiences in different markets.