Look into the macroeconomic climate in each country where you do business, specifically the expected inflation rate and expected interest rate over the next 12 months. And then, use the international conditions parity to forecast the spot rate one year from today. In the form of a table, metrics, where you provide one year estimated spot rates for each currency (Russia, Canada, Saudi Arabia, Venezuela
What kind of impact those spot rates or movement in the value of the currency where you do business in. movements meaning which currency is appreciating and which is depreciating, how that is likely to impact your business model going forward. Which currency do you prefer to invest in, which currency do you prefer to finance in, and which currency do you prefer to generate sales in, and which currency to be used to pay for expenses. (Operating)
Risk management decisions with respect to hedging. Business relationships with government and financial institutions, or using derivatives market to hedge against foreign exchange risk (Risk Management) based on the forecast spot rate one year from today, move on to the strategy for how you are gonna manage the risk associated with doing business in those currencies. At Subsidiaries level and Parent level. There’s the cost of the hedge, address the hedging cost.
How you gonna operate your company, oil exploration, and export business. You want to think about what currency is preferred to be an invoice in. markets you want to sell your oil, the currency you want to get paid in. Selling within or outside the organization in different countries. Whether you want to be paid in your local currency or buyer currency.
How you want to operate. Trying to maximize pre-tax profit in locations where you pay a very low rate of tax, and minimize pre-tax profit in locations where you pay a very high rate of tax. Repositioning funds. Should include various cooperate income tax rates paid. Where you want to concentrate your pre-tax profit. Where and how exactly you want to move profit or cash from one location to another using various repositioning techniques. (research on tax rate)
Investing decisions. Capital investment and project. Take into account the various countries where you do business and opportunities for investment and growth. EVENTS hints as to where are most profitable to invest. Consider some of the threats or weaknesses that go along with investing in those countries. Political and Country risks when you make your investment decisions. (Investment Risk) a function of expected economic profit on the projects you are considering, and foreign exchange risk and political risk
Financial decisions. How you gonna finance. The function of the proportion of debt, the proportion of equity that you use. Decide a capital structure for each company, (%debt vs %equity) — for example, in the debt market, what type of corporate interest rate you are likely to pay for debt (issuing bonds or borrowing from the bank), what type of return you likely to pay for your shareholders. kWACC, cost of capital. The objective is always to reduce the weighted average cost of capital as much as possible, the more project you would be able to take on with the expectations of generating economic profit. Positive net present value.
GOAL: Maximize shareholder’s value. Report your decisions with reference to textbooks, or other sources. (Bloomberg terminal). Explain decisions and how it would maximize shareholder value.
You can find the current and expected cross exchange rates on the second document. It also includes the expected interest rate, beta, corporate tax rate, risk-free rate, and market risk premium of all four countries. This would help you to make decisions according to the different scenarios provided.
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