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FIN 3034 INTERNATIONAL FINANCIAL MANAGEMENT OVERVIEW As the world of business becomes increasingly global, multinational corporations (MNCs) are establishing the production and marketing operations in foreign countries

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FIN 3034 INTERNATIONAL FINANCIAL MANAGEMENT

OVERVIEW

As the world of business becomes increasingly global, multinational corporations (MNCs) are establishing the production and marketing operations in foreign countries. These MNCs face a variety of challenges. One such critical challenge faced by MNCs in foreign exchange markets is fluctuations in currency exchange rates. It is even more pertinent in the Covid-19 pandemic, when fluctuations have been noted in Malaysian Ringgit (MYR) exchange rates thereby causing significant instability in profit margins and losses to the bottom line of various Public Listed Malaysian company with global operations. Thus, exchange rate risk management is an integral part in MNC’s decisions about foreign currency exposure. Measuring and managing exchange rate risk exposure are important functions in reducing a MNC’s vulnerabilities from major exchange rate movements. In order to manage currency exchange rate risks, MNC often use financial instruments or currency derivatives.

 

The objective of this coursework will be to learn how multinational companies manage and mitigate exchange risk exposure. In order to fulfil the objective of the coursework, you will be assuming the role of a Finance Manager and you are expected to analyse a Malaysian Public Listed (on Bursa Malaysia) company with global business operations. The firm could be based in Malaysia or overseas with an operating presence in Malaysia. While the global mobility of these companies creates new business opportunities, it also makes these companies vulnerable to various foreign exchange risks. Bearing in mind the current volatility in the foreign exchange market owing to the Covid-19 pandemic, it’s imperative for Finance Managers (such as you all) make periodic strategic financial decisions bearing in mind the firms’ global operations. These decisions involve understanding and management of risk exposures faced by these firms. 

 

Furthermore, this Coursework is developed as an integral part of the International Financial Management subject to enable students to apply what they have learnt in a real-world scenario and to exercise critical analyses in developing viable risk management recommendations and making sound conclusions. The coursework report will provide students with the opportunity to apply their knowledge of understanding the firm’s financial strategies, competitive advantages and the foreign exchange exposures. Incorporation of academic references is highly recommended for students to embed on-going research on exposure management strategies and challenges.  The coursework report will assess the students’ knowledge via their selection of appropriate tools and techniques to manage the forex risks. 

 

OBJECTIVES

 

The objectives of the Coursework Report are to enable students to:

• Determine the different types of financial exposure faced by companies operating in a multinational environment;
• Understand how the tools of international financial management are applied in a real-world scenario;
• Critically analyse the different strategies employed by the respective companies to manage the risks associated with multinational business operations; and
• Appreciate the requirements in business for report writing.
• Hone inter-personal skills of working in small-learning groups, a skill that is very much requirement in their future corporate roles.

 

WRITTEN GROUP REPORT (30 weightage from the total of 100 marks)  

 

The written group report is divided into four parts (a, b, c and d). In order to begin, please (1) select an appropriate Multinational Company of your group’s choice, from the companies listed on the Bursa Malaysia Stock Exchange (www.bursamalaysia.com). You are (2) required to download a copy of the selected Company’s financial report (other publicly available report such as Chairman’s note, investor’s report) of the last three-years (i.e., January 1 2018 – December 31 2020) and review the downloaded reports. The (3) analysis of the report will be assuming the role of a Finance Manager where you are expected to analyse a Malaysian Public Listed company with global business operations. The firm could be based in Malaysia or located overseas with an operating presence in Malaysia. Alongside, you will need to (4) access Bank Negara website or the Thomson Reuters database available at Sunway University Library for gathering forex rates, such as spot rates and forward rates to support part (b) and (c) of this coursework. 

• You may either (1) calculate forward rates based on information shared in Chapter 6 of your lecture slides or you may just download the forward rates. 
• The rates have to be calculated between the same analysis period (i.e., 3 years or January 1 2018 – December 31 2020). The rates can be calculated on a monthly basis to form short run (1 and 3 months) or long run (6 and 9 months) analysis.

 

Prepare a Written Group Report not exceeding 3,000 words on the following:

 

1. A critical analysis of the selected Company’s financial strategy in its multinational operations with particular emphasis on its strategies to sustain and transfer its competitive advantage; 
   25. marks) 

 

For part (a) you are expected to analyse and critically discuss the firms’ existing financial strategy and its competitive advantage. You may begin by looking at the annual report, website information, and analyst report. Understand what the competitive advantages are for the public listed company. You may use SWOT analysis, Porter’s Five-Force’s analysis model, Generic Performance Matrix or any other framework deemed fit.

Once you list the competitive advantages, please link it back to the financial strategies and also explain why you consider they are the competitive advantages.

Part a will be considered as an introduction to the company. You may introduce the company to discuss the following outlines (not exhaustive):

? the company’s financial and business strategy (whether they invest in downstream activities, i.e., set up their own manufacturing units to support their main function), they invest in joint ventures, debt acquisitions and credit worthiness;

? its differentiation or diversification strategy;

? Its existing business model that the company currently adopts that leads to financial strategies being achieved;

? its competitive advantages.

Additional sources to use: Overview of the company, corporate structure, expansion plans, competitive advantage, product value chain. Type of answer: Qualitative.

 

2. Determine and discuss the operating, transaction and translation exposures faced by the selected Company and its financial impact on the last three most recent financial years; 
   25. marks) 

 

For part (b) you are expected to look at the financial statement notes, CEO/ Chairman Statement, to find out what type of F/X exposure the chosen company faces. You need to determine the financial impact on the company (e.g., revenue, cash flow, market value or profits) owing to the movement in currencies.

E.g., If the Chairman mentioned that the Thai subsidiary for the company contributed to 40% of the revenue/ profits. It means the company deals with THB exposure. Find out what is the amount of the revenue / profit (40% equivalent), you are then expected to draw up quantitative analysis to show the financial impact of the forex exposure on the calculated revenue / profit or market value. You can assume the dates when you would like to show the exchange rate difference between sale value at the start and end of the financial year. That will indicate the variance between the past and relatively recent current exchange rate movements.

If the firm has cash flows from Vietnam due to the production or sale of goods. The company is exposed to VND. In that case, for the movement in the VND what is the impact for the Malaysian company?

If the company is setting up a factory in Philippines and you notice that the investments made in that market is significantly large. You may investigate and critically discuss what is return on investment or impact on the invested amount because of the increase or decrease in the currency prices?

Categorise which type of exposure, i.e., Transaction, Translation and Operating  Exposure based on your understanding. Calculate the impact of that exposure on Bills outstanding, Loans or Deposits, Profit or Revenue Transfers and finally on the Sales or Purchases. What is the percentage change in value of the aforementioned items due to the appreciation or depreciation of the foreign currency? Is there any link with the exchange rate movement in the short run or long run (credit or holding period)  Type of answer: Quantitative and Qualitative.

 

3. Critically evaluate the effectiveness of the international financial management strategies adopted by the selected Company, including relevant calculations to support your analysis; 
   25. marks) 

 

For part (c) you are required to assess the risk management techniques used by the company. You can begin by introducing the hedging instruments under the three types of exposures which in turn allows your chosen firm to manage or eliminate FX hedging.

Steps: Identify the hedging techniques used by the company to deal with the risks associated with global presence and operations. List/ assume the risk management product used by the company, futures, options, forwards. Use simple calculations to show the profit or loss from the change in the prices of the currency.

(Purpose of this part will be to assess the students understanding of the different hedging/ risk management tools. Ability to use the concepts, feel free to show break-even analysis or simple profit or loss from the tool used.)

E.g., What is the impact of the appreciation or depreciation and the company is deciding to make investment decisions, then ideally should invest in options because it gives you the choice to exercise the contract or not than a futures contract?

Use simple calculation to show the net profit or loss out of the risk management tool used by the company. Source: Can be assumption, or the risk management report disclosure in the website. Each hedging strategy applied must clearly show how the exposure amount calculated in part (b) has been managed? Type of answer: Quantitative and Qualitative.

 

4. Empirically and conceptually is purchasing power parity a good characterization of the relationship between exchange rates and relative price levels in the short run and in the long run? (Refer to specific studies or data to support your answers). 
   25. marks)

 

For part (d) you need to discuss the short-run and long-run effects on the exchange rate of a shock et > 0, where et is white noise  in the Capital Market?  What do we mean by “purchasing power parity” in the Asian Economy Context in comparison to the Developed Capital Markets?

Under what conditions should purchasing power parity hold? (Give an algebraic analysis.) Which commodities would you expect to satisfy these conditions?

Empirically and conceptually, is purchasing power parity a good characterization of the relationship between exchange rates and relative price levels in the short run and in the long run? (Refer to specific studies or data to support your answers.).

 

 

 

 

Parts a to d of this coursework will contribute to the below mentioned marks:

Areas of Assessment:	Marks
Part (a)	25
Part (b)	25
Part (c)	25
Part (d)	25
Total Marks:	100
Overall qualitative and quantitative effort in the Written Group Report (30 weightage from the total of 100 marks)	30

 

 

POINTS TO REMEMBER

 

1. Each group should consist of up to SIX members only and students are allowed to select their own group members.
2. Upon forming your group, please go to the “Coursework Sign-Up Sheet” on eLearn. You will need to ensure that all members of the group sign in to the same group number. In order to ensure this process is carried out effectively, it is recommended that you select a team leader, who can start by sign-up first and then share the group number with the remaining members.
3. A separate thread will be created titled “FIN3034_CW_Group Details”. You are expected to follow the discussion guide on eLearn regularly.
4. Under the above-mentioned thread, each group needs to create one thread where you put the “Group number – Company Name” in the aforementioned bold format.
5. Each Group must select a different Company for the Coursework and no two groups are allowed to select the same Company. Thereafter, you may start work immediately. Thus, you need to check the “Discussion Thread - FIN3034_CW_Group Details” before you select a company.
6. The Written Group Report should not exceed 3,000 words and must be clearly divided into four sections, with one section devoted to each of the tasks specified above.
	If any table or framework can is presented in a table format and pasted as image kindly
	ensure that it does not impact the quality of reading.
7. All groups must include a minimum of four academic references where ever suitable in attempting the above four questions. The inclusion of such references will be awarded in marking.
8. The Written Group Report must be typewritten. Formatting details: font size 12pt Calibri or Times New Roman, double line spacing, A-4 size paper and double sided.
9. The completed Written Report must be submitted to via the eLearn Portal. The acceptable similarity index for the Turnitin Report is 20%.
10. All assumptions should be clearly stated and supported where possible.
11. All references should be provided using the Harvard referencing system.

 

GUIDELINES FOR SUBMISSION

A softcopy of the completed Written Group Report must be submitted via the eLearn Portal. Please ensure that the Coursework has the following items included in the report (in terms of formatting):

1. Cover sheet

2. Index Page

3. Appendix (inclusive of tables, exchange rates selected, figures if any). You can embed the aforementioned details in the body of the report as well.

4. Appropriate label and formatting must be applied. Please proof-read your report before submitting it on Turnitin.

5. Font size 12pt Calibri or Times New Roman

6. Double line spacing, A-4 size paper and double sided

7. Please note, that image pasting of word tables is highly discouraged as it can impact the reading quality of the document. However, if any table or framework can is presented in a table format and pasted as image kindly ensure that it does not impact the quality of reading.

Due Date for submission of the softcopy Written Report and Turnitin Report is 12PM, 25 OCTOBER 2021 (MONDAY).Turnitin Report may take 24 hours, thus please ensure that your originality report has already been generated before the final submission (deadline). You are allowed to re-submit before the deadline is over to check the originality index.

 

ACADEMIC MALPRACTICE

 

Plagiarism, whether inadvertent or deliberate, shall include the following:

• Word-for-word copying of sentences or whole paragraphs from one or more sources, or presenting substantial extracts from books, articles, theses, other unpublished works such as working papers, seminar and conference papers, internal reports, computer software, lecture notes or tapes, without clearly indicating their origin;
• Using very close paraphrasing of sentences or whole paragraphs without due acknowledgement in the form of reference to the original;
• Submitting another student’s work in whole or in part; or
• Use of other person’s ideas, work or research data without acknowledgement.

 

Collusion, whether inadvertent or deliberate, shall include the following:

• Submitting an ‘individual assignment’ that was jointly prepared by the candidate and any other third party, e.g., other students, family members, professionals, or other tutors/lecturers;
• Submitting a ‘group assignment’ that was jointly prepared by the group and other third party,

e.g., other students, family members, professionals, or other tutors/lecturers; or

• Copying each other’s work and passing it off as an individual effort.

Please refer to the Student Handbook for Undergraduate Programmes for details about academic malpractice penalties.