Read The Questions Carefully and Be Sure to Address All the Points Raised:-
Short Answer 1-8 [10 points each and each about 3/4 - 1 page double-spaced]:
1. If the spot rate for Swiss Francs versus US Dollars is one SF equals 1.15 US $, and the annual interest rate on fixed rate one-year deposits of SF is 0.25% and for US$ is 1.5%, what is the nine-month forward rate for one dollar in terms of SF? Assuming the same interest rates, what is the 18-month forward rate for one SF in US$? 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, 2016, SWATCH expects to ship 900,000 watches from its plant in Switzerland to US, which it will sell through its US dealers on 270-day terms at $75.00 each. Thus SWATCH will receive payment from its dealers on September 27th, 2016. Assuming that SWATCH needs to cover its expenses in Switzerland and thus wants to hedge its SF exposure using a forward contract with a Swiss bank in the US, what is the minimum amount of SF they should receive on September 27th, 2016 given the nine month forward rate for one US dollar in terms of SF that you calculated in problem one? What are two other ways SWATCH might hedge their SF/US$ 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. Apple, whose global sales are generally dollar denominated, finds it has excess cash of $55,000,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.75% or a three-year SF denominated deposit paying 1.75% 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 which Apple 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 Apple revised its outlook for the SF to appreciate 1.25% per year? Show all calculations!!!
5. Country A has 14000 units of labor and can produce 2 goods, manufactures and food. A's producers take 2 units of labor to produce one unit of manufactures and 7 units to produce one unit of food. Country B has 30000 units of labor and takes 6 units of labor to produce one unit of manufactures and 3 units 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 their corporate income taxes globally. Explain how Apple has done this and how some US pharmaceutical companies are using M&A to achieve similar results. Do you think this is unethical or unpatriotic?
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. Timberland developed global supply chain problems when the company failed to build a suitable and managed global manufacturing and logistics system. The company was introduced in the early 90's to a heavily complex global manufacturing and logistics network. With the institution of manufacturing facilities in Dominican Republic and Puerto Rico, to reduce wage costs and source footwear from suppliers in countries like Asia, Europe and Latin America. As these two incidents are occurring the company distribution network was accommodating and service consumers in more than 50 countries.
More complication ensued as the average shipment of shoes to retailers was for less than 12 pairs of each type of shoe, creating a massive amount of individual shipments to track. From these various situations, Timberland saw that its logistics system was breaking down due to the rapid growth, globally distributed supply and distributions chain and heavy amount of individual shipments. The information system the company owned could not handle the coordination of the dispersed production and distribution network. So after careful thought at the requirements needed to track a product from factory to final destination and match supply with demand the company developed their required information system in conjunction with ACS a freight forwarder and The Rockport Group, a software house.
With this collaboration Timberland would simplify its system at the physical distribution level and consolidate regional warehousing which made implementation of the information system tranquil. Further, under the new information system or internet based system, source in Asia would feed into one warehouse.
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.
Essay (20 points - about 3 pages double spaced):
9. 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 your team company [that is IBM; Merck; WalMart; GE; Siemens, or VW] has used over time and the one it is now trying to implement. After identifying the strategies it has used 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 approach and implementation and how it may have modified its organization, supply chain or marketing over time given changes in its markets, its suppliers and its industry's competitive structure.