INT 220 Module Four Assignment Guidelines and Rubric
Overview
Foreign exchange impacts the profitability of transactions in international markets. It can turn a profitable business into one that loses money and can turn an unprofitable business into one that makes money.
In this assignment, you will analyze the impact of foreign exchange on different business scenarios and present your findings in a short business memo.
Scenario
You manage the international business for a manufacturing company. You are responsible for the overall profitability of your business unit. Your company ships your products to Malaysia. The retail stores that buy your products there pay you in their local currency, the Malaysian ringgit (MYR). All sales for the first quarter are paid on April 1 and use the exchange rate at the close of business on April 1 or the first business day after April 1 if it falls on a Saturday or Sunday. The company has sales contracts with different vendors that determine the number of units sold well in advance. The company is contractually obligated to sell 5,000 units for exactly 1.50 million MYR for the first quarter. The break-even point for each unit is $75 in U.S. dollars. Use the following foreign exchange rates:
On January 1, the daily spot rate is 3.13 MYR, and the forward rate is 0.317 U.S. dollars per MYR for April 1 of the same year.
On April 1, the daily spot rate is 3.52 MYR.
Directions
Using the information above, create a short business memo that explains the profitability, viability, and importance of considering foreign exchange on the basis of the scenarios below.
Scenario 1: The company uses the spot rate on April 1 to convert its sales revenue in MYR to U.S. dollars.
Scenario 2: On January 1, the company uses that day’s forward rate today to lock in a foreign exchange rate for its expected 1.5 million MYR in sales. This means the company agreed to exchange 1.5 million MYR using the forward rate on January 1 when April 1 arrives.
Scenario 3: Another option for the company is to spend the foreign currency and avoid any currency exchange. Because it is a manufacturing company, raw materials are always needed.
Specifically, you must address the following rubric criteria:
Foreign Exchange Calculations: Determine the profitability of the international business by using foreign exchange calculations for the first and second scenarios.
Spend or Save: Analyze the viability of spending foreign currency to purchase raw materials as a strategy to mitigate foreign exchange risk, considering the factors that determine its feasibility and effectiveness for the company.
Conclusion: After determining the result for each scenario, make conclusions about the importance to a company’s financial results of foreign exchange risk.
What to Submit
Submit this assignment as a 250- to 300-word Microsoft Word document with double spacing, one-inch margins, and 12-point Times New Roman font. Sources should be cited according to APA style.