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INT 620 Final Project Guidelines and Rubric Overview The final project for this course is the creation of a Foreign Exchange Rate Risk Management in Multinational Enterprise in Business Strategy. You will examine how a multinational enterprise (MNE) uses foreign exchange risk management in its business strategy. The final project for this course consists of two major components. The first component is a Case Study Briefing document that focuses on a case study of foreign exchange risk management techniques currently used in a multinational enterprise (MNE). You will complete a briefing document in Module Five that focuses on the risk management techniques currently used in the MNE that you have chosen. Within this document, you will address the background and nature of the company's business, the exposure to foreign exchange rate the company faces (i.e., through its accounts payable because it imports, through its accounts receivable because it exports, or through both accounts), and the tools or techniques the company currently uses to mitigate those risks (i.e., the company uses foreign debt to hedge the currency exposure, using derivatives such as currency swaps, futures, forwards, or options, for only a certain number of months to hedge only a certain percentage of the exposure, etc.). The second component is a Subsidiary Expansion or an Investment document that focuses on your research to expand this MNE into a new country. The country could be the country in which the MNE is currently located. Or, it could be any country that you are interested in expanding into. Within this document, you will address the capital structure of the new subsidiary and, if the company has debt financing, from where or which currency you would get the debt financing, and why. Once the company breaks even and starts making a profit, how would you manage the profit (i.e., need to invest for expansion for growth or because of restrictions on blocked funds, repatriate back to the mother company annually because you are not certain of the country and currency risk, etc.)? The project is divided into two milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules One and Five. The final submission will be in Module Nine. In this assignment, you will demonstrate your mastery of the following course outcomes: Analyze the fundamentals of foreign exchange risk management in mitigating corporate risk Interpret exchange rate movements when assessing the foreign exchange risk on the corporation by examining the institutional structure and mechanisms of foreign exchange markets Evaluate the financial and strategic impact of foreign exchange risk on the corporation for shaping future risk management and funding strategies Analyze how the dynamics of global capital markets shape the foreign exchange market for determining funding strategies and mitigating corporate risk Propose appropriate international capital budgeting strategies for managing multinational corporations' international monetary relationships Prompt Multinational corporations (MNEs) operate globally with several established subsidiaries in foreign countries. In this project, you will choose a MNE. You will then download the company's annual report and analytically research the company to understand its current foreign exchange rate exposure, and the tools or techniques the company uses to mitigate the risks. Moreover, you will choose a country in which you will expand your presence and create a new subsidiary. You will need to identify your capital structure for your new subsidiary, as well as plan for your profit repatriation. Resources to consider: Corporate Income Tax Rates Around the World, 2014 KPMG: Corporate Tax Rates Table Country and Lending Groups World Trade Organization: Statistics Database U.S. Free Trade Agreements How Much Do U.S. Multinational Corporations Pay in Foreign Income Taxes? Global Financial Development International Debt Statistics Specifically, the following critical elements must be addressed: I. Company Proposal and Background: Provide a brief historical background on the firm you have selected, including the nature of its products or services. II. Foreign Exchange Risk Management Analysis: Analyze the firm's transactions, its foreign exchange rate risk exposure, and the tools the firm currently uses to mitigate the risk. a) Explain the firm's specific transactions, which are the accounts payable and accounts receivable, and how these transactions expose the firm to foreign exchange rate risk. Some firms could be exposed to both of the accounts because they import raw materials from foreign countries, add value to the product, and then re-export the product to other foreign countries. However, the net exposure must be only one account. b) Identify the tools the firm currently uses in mitigating the foreign exchange rate risk. Occasionally, firms utilize more than one tool to hedge the risk. Some examples of tools are using foreign debt to hedge the foreign income, or using derivatives such as currency swaps, futures, forwards, or options. c) However, most of the time, the company does not fully hedge its exposure to the foreign currency. You must explain the percentage hedge of its exposure as well as the hedging time length. Then, you must provide the potential risk to which the company could still be exposed from the foreign exchange rate. III. Investments/Subsidiary Expansion: Choose a country to enter to create a new subsidiary. Determine the capital structure of your new subsidiary, including the source of funding. a) Provide an explanation of the country in which you chose to create a new subsidiary. It is possible that the country you selected already has a subsidiary of your MNE, which is fine. b) Explain what the capital structure for this new subsidiary should look like. Should it be the same as the mother company's? Why? If your subsidiary should have debt, determine the source of the debt and explain your rationale for choosing the source. IV. Repatriations of Funds: Once your subsidiary turns a profit, evaluate how you will repatriate your profit. You will need to look into the country in which the subsidiary is located and determine if it has any restrictions on blocked funds. If so, you must incorporate the findings into your final decision. Explain if you will repatriate your profit back annually on all, or only partially, and why. Milestones Milestone One: Company Proposal and Background In Module One, you will submit your Company Proposal and Background short paper. The paper should include a brief historical background of your chosen firm's business. It should include the nature of the firm's products or services, as well as its geographical exposure and foreign exchange exposure. The format should be a one- to two-page Microsoft Word document. This milestone is graded with the Milestone One Rubric. Milestone Two: Foreign Exchange Risk Management Analysis In Module Five, you will submit your Foreign Exchange Risk Management Analysis. Your analysis should include foreign exchange risk net exposure and the tools or techniques your chosen company currently uses to mitigate the risk. In Milestone Two, you will also analyze the company's hedging characteristics and other potential risks that might arise from this imperfect hedge. This milestone is graded with the Milestone Two Rubric. Final Submission: Final Report In Module Nine, you will submit your Final Report. It should be a complete, polished artifact containing all of the critical elements of the final project. It should reflect the incorporation of feedback gained throughout the course. This submission is graded with the Final Project Rubric. Final Project Rubric Requirements of Submission: Written components of projects must follow these formatting guidelines when applicable: double spacing, 12-point Times New Roman font, one-inch margins, and discipline-appropriate citations. Eight to twelve pages are required, not including the cover page and resources. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Company Proposal and Background Exemplary (100%) Meets \"Proficient\" criteria and the background information provided is substantiated by scholarly research Proficient (90%) Provides a brief historical background on the firm selected, including the nature of its products or services, by providing examples Foreign Exchange Risk Management Analysis Meets \"Proficient\" criteria and each transaction is justified by scholarly evidence Foreign Exchange Risk Management Analysis Meets \"Proficient\" criteria and the examples provided are a product of scholarly research Foreign Exchange Risk Management Analysis Meets \"Proficient\" criteria and is substantiated by scholarly evidence Analyzes the firm's specific transactions: accounts payable and accounts receivable, and how these transactions expose the firm to foreign exchange rate risk by providing evidence of each transaction Identifies the tools the firm currently uses in mitigating the foreign exchange rate risk, by providing examples Analyzes the percentage hedge of the company's exposure and the hedging time length by providing specific examples Investments/ Subsidiary Expansion: Meets \"Proficient\" criteria and the explanation of the new subsidiary is substantiated by scholarly evidence Provides an explanation of chosen country to create a new subsidiary by using specific examples for reasoning Needs Improvement (70%) Provides a brief historical background on the firm selected, including the nature of its products or services, but does not provide specific examples Analyzes the firm's specific transactions and the possible exposure to risk, but does not provide evidence of each transaction Not Evident (0%) Does not provide historical background of the company selected Value 13 Does not analyze the firm's transactions or possible exposure to risk 13 Identifies the tools the firm currently uses in mitigating the foreign exchange rate, but not does provide specific examples Analyzes the percentage hedge and the hedging time of the company's exposure, but the submission does not include specific examples Provides an explanation of the chosen country but does not use specific examples for reasoning Does not identify the tools the firm currently uses to mitigate the foreign exchange rate 13 Does not analyze the percentage hedge and/or the hedging time of the company's exposure 13 Does not provide an explanation of the chosen country selected for possible expansion 12 Investments/ Subsidiary Expansion: Meets \"Proficient\" criteria and the outcomes selected are substantiated by scholarly research Provides an explanation of the capital structure's anticipated outcomes and source of funding. Submission includes a determined source of debt, if applicable, and provides specific examples of each finding Repatriations of Funds: Meets \"Proficient\" criteria and the plan to repatriate is substantiated by scholarly research Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-to-read format Provides an explanation of how the group will repatriate the profit and identifies whether it should be done annually on all, or only partially Submission has no major errors related to citations, grammar, spelling, syntax, or organization Provides an explanation of the capital structure's anticipated outcomes and source of funding, and determines whether or not the company has any debts, but does not provide specific examples of each finding Provides an explanation of how the group will repatriate the company's profit but does not identify whether it should be done annually on all, or partially Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not provide an explanation of the capital structure's anticipated outcomes or the company's source of funding; nor does the submission determine whether or not the country has any debt 13 Does not provide an explanation of how the group will repatriate the company's profit 13 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 10 Earned Total 100% COURSE: INT 62O MILESTONE ONE SYBIL NNADI PROFESSOR: PAUL SCHNEIDERMAN SOUTHERN NEW HAMPSHIRE UNIVERSITY Historical Background: Toyota motors are a Japan automobile producer business. This is related in Japan. The business was started on the year 1937. It's giving economic services as well as participating among other lines of the industry. It creates vehicles below the individual product name. Toyota vehicles are well-liked for their prolonged existence and dependability, superiority, engineering, as well as value. (Toyota, 2014) Toyota is an initial and main in the Japan as well as has a next place in the earth. Toyota also has a big market share in equally the America as well as Europe. Moreover, Toyota Motors have market shares in south-east that is mainly in the Asian countries. Toyota Motor business, being an international is the world's biggest automaker in ways of sales volume. Because of 2008, Toyota uses roughly 316,000 citizens around the earth in assessment to second positioned automaker General Motors' and also 266,000 workers. The business is chiefly connected in automobile industry and economic business. (Jablin, 2000) 2. Products and also services: Toyota is individual of the chief business to push hybrid electric motor vehicles in the market as well as the primary to commercially mass-create as well as sell such vehicles, through the description of the Toyota PRIUS in the year 1997. The business finally began providing this choice on the main lesser cars like as Camry as well as later through the Lexus divisions, Toyota Motors producing various hybrid luxury motor vehicles. It labelled such expertise in Toyota Motors cars as "Hybrid Synergy Drive" as well as in Lexus editions as "Lexus Hybrid Drive." Toyota Motors plug-in hybrid electric motor vehicle project start in 2007, through road trials of the example vehicle in France as well as the UK in 2008. The \"first generation Toyota RAV4 EV\" Toyota Motors was leased in the America from 1997 towards 2003, along with at the lessees' request, numerous units were sold behind the motor vehicle was discontinued. An entire of 1,484 were sold in California to gather the state's CARB permission for zero-emissions motor vehicles. In 2002 Toyota start an expansion and expression program to analysis the Toyota FCHV, Toyota Motors a hybrid hydrogen oil cell motor vehicle related on the Toyota Highlander creation SUV. Toyota also constructs a FCHV bus related on the Hino Blue Ribbon metropolis low-floor bus. 3. Geographical Exposure: Toyota has industrial unit in most parts of the earth, manufacturing and also assembling motor vehicles for local bazaars in Japan. Toyota started the Innovative Worldwide Multipurpose motor vehicle project to optimize worldwide manufacturing as well as supply systems for raise trucks as well as multipurpose motor vehicles, and to satisfy bazaar demand in extra than almost 140 countries international. IIMV described for diesel engines to be ready in Thailand, and also manual transmissions mainly in the India as well as the Philippines, and also for supply to the states charged with motor vehicle creation. For motor vehicle assembly, Toyota Motors would use factories in Thailand, and also in the Indonesia, as well as Argentina, along with South Africa. These four chief IIMV creation and sell abroad relates supply Asia, Africa, and the Middle East with three motor vehicles: The Toyota HILUX and also the FORTUNER, along with the Toyota In nova. 4. Foreign Exchange Exposure: Toyota Motors has foreign money exposures connected to buying, and also selling as well as financing in currencies some of the other than the local money in which it works. Toyota is exposed to overseas currency risk connected to future earnings and also assets as well as responsibility that are exposed because to operating cash flows as well as diverse financial devices that is denominated in overseas currencies. Toyota's generally important foreign money exposures connect to the U.S. dollar as well as the euro. (Giddy, 2014) Bibliography Giddy, I. H. (2014). The Management of Foreign Exchange Risk. Retrieved from http://people.stern.nyu.edu: http://people.stern.nyu.edu/igiddy/fxrisk.htmJablin, F. (2000). The new handbook of organizational communication: Advances in theory, research, and methods. Retrieved from https://books.google.co.in: https://books.google.co.in/books? hl=en&lr=&id=DLdyAwAAQBAJ&oi=fnd&pg=PP1&dq=leadership+theory+promotes+communication&ots =K-YmsStoW8&sig=qgskbMVAsAft6vgYiMc8nlYyMeo Toyota. (2014). Retrieved from www.toyotauk.com: www.toyotauk.com/media/Our-approach-toquality.pdf COURSE: INT 62O MILESTONE TWO FINAL PROJECT SYBIL NNADI PROFESSOR: PAUL SCHNEIDERMAN SOUTHERN NEW HAMPSHIRE UNIVERSITY Foreign Exchange Rate Risks Introduction Foreign exchange rate risks are those losses that occur to corporations that operate in many countries and thus do make payments or receive payments using different currencies. Thus any time a transaction is done, the fluctuating exchange rate adversely affects the outgoing dollars or incoming dollars (Homaifar G., 2004). When a payment is going out and the rate increases, the company is likely to pay less and vice versa. If some payments are coming in and the exchange rate goes higher, the company is going to earn more. Toyota Motor Corporation Toyota Motor Corporation is a manufacturer of Automotives, its headquarters are I Toyota, Aichi Prefecture Japan. It has businesses globally including USA, Europe, Australia, Canada, and Britain. This means that it operates with currencies like the local Japanese yen, the euro, the US dollar, the Australian dollar, the British pound and the Canadian dollar. When I look at its consolidated financial statements, they are presented in the local currency that is the Japanese yen. Thus automatically this will imply that this currency is affected by the fluctuations in the foreign exchange rates. The specific risks are transaction risks and the translational risks. The risks are suffered when the company prices its products that have been sold and also the materials that have been bought using foreign currencies. Adverse effects have been always being witnessed due to the ever appreciating characteristics of the Japanese yen against major currencies like the US dollar. If the trend is continued, then the health of the Toyotas financial statements may be adversely affected. Tools Toyota employs to hedge foreign exchange rate risks The company employs the use of particular derivatives as financial instruments to hedge its foreign exchange rate risks. One of the tools it uses is the interest rates swaps. The second one is the increasing of localized products of some of its products. While the third tool being foreign currency swaps and the last one is interest rate caps ("SEC Form 10-K", 2015). These approaches have greatly reduced the risks however; the risks have not yet been eliminated. However, before the company hedges its risks, it has to determine the hedging instrument and its effectiveness. For example, quantitative models which need multiple market inputs like interest or foreign exchange rates determined the fair values of the company's fair values of it's over the counter derivative assets and liabilities. The other ways the company the company ensures that it meets its funding objectives, it issues fixed and float rate debt which is issued in many currencies. The company's policy is to ensure that it's less exposed to changes in foreign exchange rates ("SEC Form 10-K", 2015). Therefore, if the currency exposure is associated with foreign currency debt, the company issues foreign currency swaps to hedge it thus converting its obligations into US dollars which take a 3 months' period. This debt can be identified as amortized cost in the consolidated balance sheets. However, such like companies are not just left alone to work on their loss or maybe profits due to currency fluctuations, other financial institutions have come up with services to help their clients recover from the adverse effects just in case the company is unfavorably affected (Homaifar G., 2004). We have banks and insurance companies that offer these services and hence normalizing the trading activities. Thus companies need to seek the necessary guidance on how they can be covered from these risks so as to avoid cases of running at a constant loss. References SEC Form 10-K. (2015). Sec.gov. Retrieved 31 January 2017, from https://www.sec.gov/Archives/edgar/data/834071/000156459015004807/tmcc10k_20150331.htm#ITEM_1A_RISK_FACTORS Homaifar, G. (2004). Managing global financial and foreign exchange rate risk. Hoboken, N.J: J. Wiley. COURSE: INT 62O CASE STUDY ON ARBITRAGE SYBIL NNADI PROFESSOR: PAUL SCHNEIDERMAN SOUTHERN NEW HAMPSHIRE UNIVERSITY Solutions to the Blades, Inc. Case Study 1. ANSWER: Locational arbitrage is appropriate: Locational Arbitrage i. Buy Thai baht from Minzu Bank ($100,000/$0.0227) 100,000 0.0227 4,405,286.34 = TBH 4,405,286.34 ii. Sell Thai baht to Sobat Bank (THB4,405,286.34 $0.0228) TBH 100,440.53 iii. Dollar profit ($100,440.53 - $100,000) $440.53 2. Besides the bid and ask quotes for the Thai baht provided in the above question, Minzu Bank has following quotations for the U.S. dollar and the Japanese yen: Value of a Japanese yen in U.S. dollars Value of a Thai baht in Japanese yen Quoted Bid Price $0.0085 2.69 Quoted Ask Price $0.0086 2.70 ANSWER: Triangular arbitrage is conceivable. Triangular Arbitrage i. Exchange dollars for Thai baht ($100,000/$0.0227) 4,405,286.34 ii. Convert the Thai baht into Japanese yen (THB4,405,286.34 2.69) 11,850,220.25 100,000 0.0227 = TBH 4,405,286.34 iii. Convert the Japanese yen into dollars (11,850,220.26 $0.0085) 100,726.87 iv. Dollar profit ($100,726.87 - $100,000) 726.87 3. ANSWER: Covered interest arbitrage is possible. Covered Interest Arbitrage i. On Day 1, convert U.S. dollars to Thai baht and set up a 90-day deposit account at a Thai bank ($100,000/$0.0227) 4,405,286.34 ii. In 90 days, the Thai deposit will mature to THB4,405,286.34 1.0375, which is the amount to be sold forward 4,570,484.58 iii. In 90 days, convert the Thai baht into U.S. dollars at the agreed-upon rate (THB4,570,484.58 $0.0225) 102,835.90 iv. Dollar amount available on a 90-day U.S. deposit ($100,000 1.02) 102,000.00 v. Dollar profit over and above the dollar amount available on a 90-day U.S. 2,835.90 deposit ($102,835.90 - $100,000) 4. ANSWER: Arbitrage opportunities are probable to disappear soon after been discovered because of the market forces. Due to the impact of action taken by arbitrageurs, supply and demand for the foreign currency adjust until there is disappearance of the mispricing. For example, if the covered interest arbitrage encompassing the immediate purchase and ensuing sale of Thai baht would place upward pressure on the spot rate of the Thai baht and at the same time place downward pressure on the Thai baht forward rate in such a way that covered interest arbitrage is no longer possible. At that specific point, there is existence of interest rate parity, and the interest rate differential amongst the two countries is precisely offset by the forward premium or discount. 1. TOYOTA MOTOR CORPORATION 1.1. Historical Background Toyota Industries commenced its automotive operation in 1936, when the first prototype car, the Toyoda AA was completed. In 1937, the Toyota Motor Corporation was formed by Kiichiro Toyoda. Toyota had a difficult time in establishing itself as a Japanese car market due to market domination by American imports from Ford and General Motors. In 1947, the Toyota Motor Corporation celebrated building its 100,000 th car. In 1957, Toyota Motor sales, Inc., was established, with the company releasing Toyopen Sedan, the company's first model to be marketed in the United States. Overseas sales companies were set up in Taiwan and Saudi Arabia to facilitate overseas production on a small scale, a vehicle plant was set up in Brazil in 1959[Toy161]. The company expanded at a very rapid rate in the 1960s and 1970s and began exporting a large number of vehicles to foreign markets. The Toyota company thrived well in the American market, its vehicles becoming reputable for their low cost, fuel efficiency, and reliability, an example been the Corolla, which was released in the United States in 1968[Enc17]. Toyota's manufacturing activities continued to grow, Toyota build its first factory in Russia in December 2007 to build Camry models. 1.2. Products and services Toyota's chief business was to push hybrid electric motor vehicles in the market as well, with the primary business being to commercially mass-create as well as sell such vehicles, through the description of the Toyota PRIUS in the year 1997. The business finally began providing this choice on the main lesser cars like Camry as well as later, through the Lexus divisions, Toyota Motors began producing various hybrid luxury motor vehicles. It labelled such expertise in Toyota Motors cars as "Hybrid Synergy Drive" as well as in Lexus editions as "Lexus Hybrid Drive." Toyota Industries Corporation is under contract from Toyota Motor Corporation to produce the Toyota Vitz or Yaris and also the Toyota RAV4. Toyota Industries produces automotive engines that are to be used in the Toyota-brand automobiles which include: Avenis, Crown, Land Cruiser and Corolla[wik17]. 1.3. Geographical Exposure Toyota's production and distribution network is extensive. Toyota and its and its affiliates manufacture automobiles and related parts and components through over 50 manufacturing companies spread in 27 countries and regions other than Japan. Toyota also maintains an extensive distribution network. This geographical distribution of the company's production base diversifies business risk and also provides a wider reach thus boosting revenues[Nko15]. Global automotive manufacturers such as Toyota, move manufacturing globally in order to reduce costs, manoeuvre around tariffs, and reduce their foreign exposure risk. Shifting of manufacturing overseas allows Toyota to match costs with revenues and also to present themselves as helping the local market manufacturing base[Low14]. 1.4. Foreign Exchange Exposure Toyota Motors has foreign money exposures connected to buying, and also selling as well as financing in currencies some of the other than the local money in which it works. Toyota is exposed to overseas currency risk connected to future earnings and also assets as well as responsibility that are exposed because to operating cash flows as well as diverse financial devices that is denominated in overseas currencies. Toyota's generally important foreign money exposures connect to the U.S. dollar as well as the euro billion [wik171]. 2. TOYOTA CORPORATION FOREIGN EXCHANGE RISK MANAGEMENT Toyota Motor Corporation is a manufacturer of Automotive, its headquarters are in Toyota, Aichi Prefecture Japan. It has businesses globally including USA, Europe, Australia, Canada, and Britain. This means that it operates with currencies like the local Japanese yen, the euro, the US dollar, the Australian dollar, the British pound and the Canadian dollar. When I look at its consolidated financial statements, they are presented in the local currency that is the Japanese yen. Thus automatically this will imply that this currency is affected by the fluctuations in the foreign exchange rates. The specific risks are transaction risks and the translational risks. The risks are suffered when the company prices its products that have been sold and also the materials that have been bought using foreign currencies. Adverse effects have been always being witnessed due to the ever appreciating characteristics of the Japanese yen against major currencies like the US dollar. If the trend is continued, then the health of the Toyotas financial statements may be adversely affected. 2.1. Toyota's accounts payable and accounts receivable As of March 31, 2016, the net finance receivables for all of Toyota's dealer and customer financing operations were 14,555.6 billion which represents a decrease of 5.9% as compared to the previous year. During fiscal 2016 accounts and notes payable decreased by 21.0 billion, or 0.9%. This decrease was facilitated mainly to the fluctuations in foreign currency translation rates. 2.2. Exposure to foreign exchange risk Toyota is exposed to foreign exchange risk in instances when there are fluctuations in foreign exchange currency rates and is more so exposed to fluctuations in the value of the Japanese Yen (which is the Toyota's domestic currency), the U.S. dollar and the euro and, to a lesser extent other currencies such as the Australian dollar, Russian ruble, Canadian dollar and the British pound. Toyota is exposed to foreign currency exchange risk due to the fact that its consolidated financial statements, which are usually presented in Japanese yen, end up being affected by foreign currency fluctuations through translation risk, and when foreign currency exchange rates change, and as a result may affect the price of materials purchased and products sold by Toyota in the foreign currencies through transaction risk. On the other hand, in case the Japanese yen strengthens against the U.S. dollar, adverse effects will be experienced in Toyota's operating results. 2.3. Tools used by Toyota to mitigate foreign exchange risk Toyota employs the use of a value-at-risk analysis (\"VAR\") in the evaluation of its exposure to foreign currency exchange rates then uses a variety of derivative financial instruments such as forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options, and increases localized manufacture of its products to reduce the effects of fluctuations in interest rate and foreign currency exchange rates. Percentage hedge of exposure, hedging time and potential risk The aggregate fair value amount of assets that Toyota posted as its cash collateral as of March 31, 2016 was 80,904 million. The fair value amount Toyota placed on its derivative financial instrument as of march 31, 2016 was 2,308 million. Therefore, the percentage hedge of its exposure to foreign currency is: 2,308 x 100=2.85 80,904 The potential risk that the company could still be exposed to is credit risk which is contained the financial instruments. [Uni16]. 3. SUBSIDIARY EXPANSION 3.1. Bahrain Country Profile Bahrain, which is officially known as the Kingdom of Bahrain, is a small Arab monarch that is located in the Persian Gulf. It is an Island country which consists of a small archipelago that is centred around Bahrain Island and is situated Qatar peninsula and Saudi Arabia's north eastern coast. In the 2010, Bahrain had a total population of 1,234,567, most of whom are Muslims[Wik172]. 3.2. Manufacturing Bahrain provides great opportunities for international businesses that wish to start up a Middle East manufacturing hub with the aim of tapping into its fast growing 1.6 trillion Gulf market. Bahrain also offers a large, skilled local workforce. The kingdom is strategically placed at the heart of the Gulf which can allow for quick, efficient access to every market in the Middle East through road, air and sea. Bahrain is ranked sixth globally by the UNCTAD World Investment Forum, for inward investment on a per capita basis, with the country's investment increasing to 12% between the year 2012-2013[Bah14]. 3.3. Factors that make Bahrain a suitable subsidiary country i. Low set up cost and cost of running industrial facilities. ii. Bahrain is a 'free zone' in terms of business as it allows for 100% ownership of businesses and real estate by foreign investors. This facilitates investors free iii. movement of capital, dividends and profits. Bahrain permits the duty free access of industrial goods to the Gulf Cooperation Council (GCC), the Greater Arab Free Trade Area (GAFTA) and the USA (facilitated iv. by the US Bahrain Free Trade Agreement). Bahrain has one of the most favourable tax regimes, where there are no corporate or personal taxes. Minimum indirect taxes, and a rather low cost of living. 3.4. Capital structure of Toyota Bahrain Limited The capital structure of Toyota Bahrain Limited should resemble that of the parent company. After a decision about overall equity mix of a multinational corporation is made, the MNC parent needs to determine the debt equity financing mix for its offshore subsidiaries. Three options must be carefully evaluated: i. Debt-equity mix of the subsidiary company should conform to the norms of the parent ii. company. The debt-equity mix of the subsidiary should fit in with the local norms of the country iii. where it operates. Debt-equity mix of the subsidiary should be variable in order to maximize opportunities to minimize taxes, exploit distortions in capital markets, offset risks and minimize overall cost of capital of the multinational corporation. Which of the above choices to be made will depend on whether and to what extent the parent company takes responsibility for meeting the financial obligations of the subsidiary. In cases where the parent assumes full responsibility of subsidiary obligations, the subsidiary company would be obliged to follow equity debt norms of the subsidiary company. As long as the parent company bears the moral and legal obligation of preventing the subsidiary from defaulting from loan payment, the subsidiary cannot have an independent capital structure[Aro16]. 3.4.1. Source of debt for Toyota Bahrain Limited Toyota Bahrain Limited, should obtain debts from its parent multinational corporation (Toyota Motor Corporation). As stated by Chowdhry & Coval (1998) subsidiaries of multinational corporations are heavily dependent on funds from parent corporations for their financial needs. Toyota Bahrain Limited should obtain its debt from the parent multinational corporation because: (i) bankruptcy costs associated with internal financing are avoided in cases where there is intra-firm parent financing, even in cases where financing is in form of debt; (ii) in cases where the tax rate in the subsidiary country exceeds the tax rate in the parent country, it makes financial sense to transfer much of the funds in the form of interest payments to the parent since these are considered tax deductible in the subsidiary company, and so the income generated by the subsidiary gets taxed at a lower rate, that is the tax rate of the parent company which is the lesser of the two rates. In cases where the tax rate of the parent company may higher than that of the subsidiary country, funds can be transferred in form of dividends. In this case the subsidiary needs to be fully financed by intra-firm parent equity which facilitates postponement of some taxes by the company to future dates[Cho98]. 4. REPATRIATION OF FUNDS According to the current U.S. rules, a U.S. multinational is not taxed on active foreign income that is earned through a foreign corporation (which includes a greater than 50% foreign subsidiary like Toyota Bahrain Limited) until when the earnings are eventually distributed as a dividend (commonly referred as deferral). I would uses deferral of tax to avoid the high corporate tax (35% of net income) that is imposed by the U.S[Exl15]. Exchange control restrictions on repatriation of capital, profits and dividends are not imposed in Bahrain, thereby enabling investors to fully transfer capital, profits and dividends. There is no levied tax on personal or corporate income. Bahrain does not impose capital gains tax, withholding or value added tax(VAT)[Sov17]. Since Bahrain does not impose any taxes on corporate income, it is a very suitable destination to start up Toyota Bahrain Limited. Secondly, Toyota Bahrain can avoid the high corporate taxes levied by the U.S. by distributing profits earned as dividends, I would repatriate the profits earned back on a quarterly basis which is the payment date for most shareholders. References Arora, S. (2016). Capital structure decisions for foreign subsidiaries. Retrieved March 16, 2017, from YourArticleLibrary: www.yourarticlelibrary.com/financialmanagement/capital-structure-decision-for-foreign-subsidiaries/72338/ Bahrain Economic Development Board. (2014, December 15). Manufacturing. Retrieved from Bahrain: www.bahrain.com/en/bi/key-investment-sectors/Pages/ Chowdhry, B., & Coval, J. D. (1998). International financing of multinational subsidiaries: Debt vs. equity. Journal of Corporate Finance, 4, 87-106. Encyclopedia Brittanica. (2017). Toyota Motor Corporation. Retrieved March 15, 2017, from Encyclopedia Brittanica: https://global.britannica.com/topic/Toyota-MotorCorporation Exley, J. M. (2015). Tax and repatriation of U.S. corporation funds overseas. Retrieved March 15, 2017, from www.atsprocurementgroup.com Lowry, W. (2014, April 30). Why geography matters so much in the automotive industry. Retrieved March 15, 2017, from Market realist: marketrealist.com/2014/04/geography-matters-much-automotive-industry Nkomo, T. (2015). Analysis of Toyota Motor Corporation. Sovereign Group. (2017). About Bahrain. Retrieved March 16, 2017, from Sovereign: https://www.sovereigngroup.com/bahrain/bahrain Toyota. (2016). Company Background. Toyota. United States Securities and Exchange Commission. (2016, June 24). Toyota Motor Corporation. FORM 20 F. Washington D.C., United States. wikinvest. (2017, JANUARY 27). Foreign Currency Exchange Rate Risk. Retrieved from wikinvest: www.wikinvest.com/stock/Toyota_Motor_(TM)/Foreign_Currency_Exchange_Rate_ Risk Wikipedia. (2017, March 14). Bahrain: constitutional monarch in Southwest Asia. Retrieved March 16, 2017, from Wikipedia: https://en.m.wikipedia.org/wiki/Bahrain wikipedia. (2017, january 28). wikipedia. Retrieved from toyota industries: //en.m.wikipeia.org/wki/Toyota_Industries BABITO SOFT DRINK COMPANY 1. INTRODUCTION Babito Company is a company that is to infiltrate the Brazilian soft drinks market, and is to be involved in the manufacture, marketing and distribution of the soft drinks. The company is set to use a multi-segment marketing strategy with the aim of attracting its target market. The company is going to meet the requirements of customers in more than one market segment. The company is going to initiate a market mix for its market segments. The company is going to start by offering 12 soft drink products by has an aim at expanding in the near future. Mission of Babito Company: To provide beverage customers with affordable, excellent beverages. Vision of Babito Company: to become a leading international bottling company whose products are enjoyed universally due to their quality. 2. TARGET MARKET AND MARKET SEGMENTATION Babito Company's products will target people of different ages, ethnic backgrounds, sexes, life styles and much more. For instance, products such Babito Fizz Power is going to target young people between the age brackets of 20-30 years. The products come with varying flavours. Babito Company will target customers who are health conscious by introducing Babito Diet special which will offer a healthier soft drink which has fewer calories per bottle. Babito Fizz Maximum targets teenagers who like soft drinks that have an extra fizzy feel and a fruity taste. Jucci Cola, targets the average working class adults of age bracket 30-50 who need a cheaper drink that can reduce their thirst. The Powerace maxim produced by Babito will target the athletes between age 13-27 ages. Children and adults from 1 to 10 years and 40 plus will enjoy using a brand known as Mango Splash. The brand will be much more convenient to carry around. The company will also target parents who tend to get the children healthy drinks. The company is set to have its highest sales during summers holidays when people need soft drinks most due to the hot weather. 3. PROMOTION STRATEGY With the advancement in technology, the most appropriate technique that the company will use for promoting its operations is by the use of media marketing and the use of social media. Research indicates that about three quarters of the world population take up to ten hours surfing through the internet. From the above-named evidence, it is evident, if the company uses the media and social media marketing promotion strategy, it will tend to reach more people in the world and thus increasing its market niche and eventually make more profits. 4. BUDGETING & PRICING PROCESS FOR BABITO COMPANY .1 Budgeting Techniques Preparation Technique: Babito company will prepare budgets based on the company's desired and set objectives. Therefore, all budget preparation should be designed to meet those set objectives. Use of evaluation: The company will use the budget in making evaluation both internally & externally. These evaluations of what was obtained as detailed in the company's annual report, will be compared to what the company needs to obtain in the coming year as indicated in its budget. Costing methods: The Company will put in place flexible cost methods that will supports it multinational operations they apply the ABC costing method. .1 Pricing Strategy Babito Company will have a policy of using the pricing system in order to realize maximum profit & ensure customer loyalty. Babito Company will ensure that price system set is taken well with public demand, gives maximum revenue, is a standard market rate pricing and will always assist in meeting the company's target in order to make the brand a major household in the soft drink business market. Promotional pricing policy - Babito company will offer promotions frequently especially during festive seasons such Christmas & Ramadhan by reducing prices of its soft drinks in order to ensure the customers enjoy the benefits of lower prices hence ensuring loyalty to the brand and ensuring the company sells more units of the products. Market penetration policy - Babito Company has an objective of targeting all potential customers through the introduction of low priced quality products, creative packaging and branding that is meant to cater for all market needs. Distribution channel: The company will employ both direct selling and indirect selling methods. Direct selling methods will involve Babito Company selling its products directly to the consumers while indirect selling method will involve agencies in marketing and selling of Babito Company products. 5. COUNTRY BACKGROUND Mexico, which is officially known as United Mexico States, is a federal state that is locate in the southern half of North America. Mexico is bordered by Pacific Ocean to the west, the United States to the south, by Guatemala, Belize, and the Caribbean Sea o the southeast, and to the east by the Gulf of Mexico. In the Americas, Mexico is the sixth largest country by total area, and is the world's 13 th largest independent nation. Mexico has an estimated population of over 120 million, who comprise of the largest mostly Spanish speaking country in the world[Wik171]. The soft drink segment which consists of bottled water, carbonates, juice concentrates, RDT Coffee & Tea, and functional drinks had 34% value in 2013, which was the highest market value in the world. In Mexico, the beverage market had a total revenue reaching 67.8 billion USD, with a CAGR of 5% between 2009 and 2013. Next to the United States and Brazil, Mexico is the third largest beverage industry in the Americas, accounting for 11.9%of the beverage industry in the Americas[PWC15]. 6. MEXICO SOFT DRINKS SWOT ANALYSIS .1 Strengths Need for increased production: The Mexican soft drinks market is strong and continues to grow and is still expected to expand. Sales of both bottled water and all carbonated soft drinks will continue to increase until 2018. Consumer preferences: Mexico continues to be the largest consumer of soft drinks in the world, therefore, penetrating into the country's soft drinks market is relatively easy. .1 Weaknesses Advertising Ban: The Mexican government has set new rules and regulations on labelling of food and non-alcoholic drinks. Television and cinema advertising have been targeted with the aim of reducing advertisement of junk foods which has been directed at children in order to tackle the rising obesity and diabetes problem of the country. Sugar Tax: Mexico introduced a new law which imposes one peso per litre of sugary soft drinks in the year 2014 in order to reduce the country's soft drink consumption by as much as 5%. This was an initiative that was started by the government with the aim of tackling the rising obesity in the country. .1 Opportunities Low calorie options of soft drinks accepted - Market analysts predict that there will be an increase in demand for diet soft drinks since Mexican consumers perceive them as a healthier option. This choice will be initiated by the ongoing health and awareness campaign by the government. Increasing importance of technology for consumer goods industry: The growing number of mobile devices have enabled customers obtain information more easily. Which in turn has transformed how the customer perceives value and the type of relationship they will have with companies selling soft drinks. Hence, for this reason, in the soft drink market, mobile technologies for consumer engagement is of great strategical importance. Small grocery stores play big role in soft drink sales - In a recent report by National Retailers Association (ANTAD) soft drinks are being purchased more often in small independent grocery stores than from hypermarkets and supermarkets. Since there are about 8,250 convenience stores and about 493,000 small independent grocery stores, Mexico has a perfect outlet for impulse purchases. .1 Threats Competition - There is domination of the soft drinks sector by international manufacturers; Coca-Cola Export Corp, Pepsi-Cola, Mexicana an Grupo Penafiel who held a combined total volume share of 91% in CY 2008. The volume of smaller privately labelled Mexican soft drink companies also increased in CY 2008 making more consumers switch to lower cost brands in response to the worsening economy. Health sector campaigns - As the Mexican government continues with the health and wellness campaign, it is expected that this will continue to hinder the growth of high sugar carbonates. 7. BRANDING, TARGET MARKET AND MARKET SEGMENTATION In the month of March of the year 2008, Coca-Cola Export Corp (Coca-Cola de Mexico announced a change of its \"Coca-Cola Zero\" formula with the aim of encouraging its consumers to try it using its new slogan \"Coca Zero Improved\". The diet carbonates such as Coca-Cola Zero has its main consumers in the middle and upper income consumer level, while regular carbonates are preferred by lower income groups. Coca-Cola also has an advertising campaign termed \"Share a Coke\" that includes soda cans with personalized names, including versions with printed braille[Kil15]. The competitors' bottling companies produces different products. For example, Pepsi bottlers, which is one of the main competitor provides drinks which fall into three categories. The carbonated drinks which make the first type the non-carbonated drinks and water. This is in line with Coca-Cola which produces similar products. The product, however, needs to be customized to dominate the market. The product strategy concentrates much on the consumer focus. Ensuring complete user satisfaction. At every level of the organization, the customers are the central focus. Another products strategy used is the profitable complexity. This approach will be applied to take care of the profits of the product and thus staying firm in the market (Christina, 2014). The pricing as a positioning strategy used by the competitors is done regarding quality. The pricing in Pepsi bottlers is done according to the type of the brand offered. The Coca-Cola company though sometimes adjusts its prices to lure more customers. Babito Company intends to price its products according to the type of products offered. For example, the company's diet cola will attract a higher price than the other drinks offered by the company. Babito Company will also reduce its prices on products especially during holidays and when market prices of similar products offered by the company go down. Also, to increase profits, the Pepsi company launched a pricing strategy that reduces the discounts it has been offering on holidays and moving towards lower prices every day. The pricing strategy to be used in the new Babito Company products will be based on the products demand in the market. Also, different sizes of bottles have different prices to meet capabilities of various consumers in the market. The strategy ensures that the pricing is not too low or too high on the competitors pricing. The placement strategy as used by the competitors is important in deciding the placement of the new product. The competitors such as the Pepsi uses the global network for distributing its products to the consumers. Their products are available at the retail and at the wholesale level. The Pepsi bottlers places of distributing are mostly non-online retailers. The placement strategy to be applied by Babito Company focuses primarily on the utility of the product distributed. Intensive distribution is used where products are stocked in the majority outlets. Selective distribution will be applied by Babito Company where some intermediaries will be used to carry their products. Finally, exclusive distribution is used where the producer selects only a few intermediaries. Through the application of the placement, a strategy will place the product at a competitive advantage than the other competitor's product (FEMSA, 2015). 8. PROMOTION STRATEGY Babito Company will use the following strategies to promote its products: Media marketing - A media market such as television and radio station can be used to market Babito products to a large population of consumers at the same time. Social media - a study by UConn researchers found out that online word of mouth plays a prominent role in consumers' purchasing decisions when it comes to carbonated soft drinks. Babito Company aims at using social media to influence preference and hence gain higher demand for our products[For14]. Print - Print media offers an important benefit of tangibility. Print medial also triggers multiple senses such as touch, smell, aesthetics thereby adding sensory experience in advertisement. Print media is also available in a variety of sizes, is engaging, versatile, and allows for creativity. Babito Company will use print media to attract customers who appreciate the sensual experience brought about by print media.[Pri17] Other- other advertising methods that Babito Company seeks to exploit include; (i) public speaking where the company will host events for organizations and promote our products using promotional materials and business cards; (ii) Use of door hangers, flyers and posters distributed around areas with potential customers for them to obtain information about the products; (iii) word of mouth advertising, where the company will hire advertisers to talk about our products in public places. 9. PRICING AND BUDGETING Table 1: Overall budget for marketing campaign Fiscal Quartet 4 Fiscal Quartet 1 Fiscal Quartet 2 Media marketing Social media Print media Public speaking Door hangers, flyers and posters Word of mouth advertising Fiscal Quarter 3 $128,000 $8,000 $150,000 $10,000 $50,000 $20,000 $128,000 $8,000 $80,000 N/A $50,000 N/A $100,000 $8,000 $120,000 $8,000 $50,000 N/A $128,000 $8,000 $150,000 N/A $50,000 $20,000 Total $366,000 $266,000 $286,000 Campaign Total $356,000 $1,274,000 This Budget is fiscally responsible as it will assist Babito Company products to penetrate the already competitive soft drinks market in Mexico. Since the advertising is set to trigger preference for the products, demand for this soft drinks will be high and therefore the company is expected to make good profits, and gain a market share. After the products are successfully differentiated from competitive offerings, distribution of the products in retail stores will be ensured an in doing so, Babito products will demand a premium price from retailers and consumers. 10. IMPACT OF PRICE ADJUSTMENTS Adjusting price to the highest priced competitor - in the event of adjusting price to the highest competitor for me to be successful there should be a high advertising expenditure, an consistency between advertising cost and price of commodity should be maintained for short term or medium term profitability. Adjusting price to the lowest priced competitor - offering to be the lowest priced competitor means that you have to cut factory prices, and hope that the retailers will end up passing some of their savings to consumers. As a general rule, low priced commodities should have a low relative advertising expenditure [Far79]. CONCLUSION The Impact of launching Babito Company range of soft drinks would greatly influence the chances of being successful in launching other business ventures in Mexico that a intended by the company. On the start-up of the company, the marketing plan will ensure that there is success in terms of overall profits therefore guaranteeing continuity for the company. The products introduced by the company are expected to beat those of the competitors in terms of pricing and branding strategies. The use of many advertising methods will assist the company gain a marketing edge in getting a market share for soft drinks in the Mexican market. In future, the company plans on expanding its venture to manufacture of alcoholic beverages which according to market research have a high market share in Mexico. References Farris, P., & Reibstein, D. J. (1979, November). How prices, ad expenditures, and profits are linked. Retrieved March 15, 2017, from https://hbr.org/1979/11/how-prices-adexpenditures-and-profits-are-linked Foran, S. (2014, November 20). Social media engagement 'significantly impact' soda choice. Retrieved March 15, 2017, from UConn Today: today.uconn.edu/2014/11/socialmedia-engagement Kilpatrick, K. (2015, August 19). Taxing soda, saving lives: Mexico's surcharge on sugary drinks is the real thing. Retrieved March 15, 2017, from Aljazeera America: projects.aljazeera.com/2015/08/mexico-obesity/soda-tax.html Print Power. (2017). Why Print Media? Retrieved March 15, 2017, from Print Power: www.printpower.eu/Why-Print-Media PWC. (July 2015). Beverage Industry in Mexico: Selected information about the beverage industry in Mexico. PWC. Retrieved March 15, 2017, from https://www.pwc.com/.../20150917-kcWikipedia. (2017, March 11). Mexico: Federal republic in North America. Retrieved March 15, 2017, from Wkikipedia: http://en.m.wikipedia.org/wiki/Mexico 1. This foreign exchange quotation is appropriate; it can be used in location arbitrage. Locational arbitrage is a process whereby an individual seeks to make a profit from the differences in the exchange rate offered by two different banks. In this case, you can use the $ 100,000 to buy Thai baht at the rate of $0.0227 each from Minzu bank, and sell the Thai baht at the rate of $0.0228 each at the Sobat bank, and in doing so, make a profit. a. Take the $100,000 and buy it Thai baht from the Minzu bank at $0.0227 per Thai baht: 100,000 =4 , 405 , 286.3 4 0.0227 You get 4,405,286.34 Thai baht. b. Take the 4,405,286.34 Thai baht and sell it for $0.0228 each at the Sobat bank 4,405,286.34 x 0.0228=100,440.52 8 You get $100,440.53 c. For you to determine the amount of profit you made from the transaction: $ 100,440.53$ 100,000=$ 440.5 3 Profit = $440.53 2. This cross section arbitrage is appropriate. In this case, this is a cross section arbitrage since you seek to exploit the arbitrage opportunity which results from pricing difference of three different currencies (Japanese yen, U.S. dollars, and Thai baht) in a foreign exchange market. a. Take the $100,000 and buy Thai baht at the rate of $0.0227 per Thai baht from the Minzu bank. 100,000 =4,405,286.3 4 0.0227 You get 4,405,286.34 Thai baht. b. Take the Thai baht 4,405,286.34 and convert it into Japanese yen at the rate of 2.69 Japanese yen per Thai baht 4,405,286.34 x 2.69=11,850,220.25 4 You get 11,850,220.25 c. Take the Yen 11,850,220.25 and convert it into dollars at the rate of $0.085 per yen. 11,850,220.25 x 0.0085=100,726.87212 You get $100,726.87 d. For you to determine the amount of profit you made from the transaction: $100,726.87 - $100,000 = $726.87 Profit = $726.87 3. The forward rate is priced appropriately. This is a case of a covered interest arbitrage where Ben Holt wants to capitalize on the interest rate disparity between two countries (United States and Thailand) by using a forward contract to shield himself against exchange rate risk. Quoted forward rate = $0.0225 per Thai baht Current spot rate = $0.0227 United States interest rate = 2% Thailand interest rate = 3.75% On the first day, convert the $100,000 that is to be invested into Thai baht at the rate of $0.0227 per Thai baht 100,000 0.0227 =4,405,286.34 = 4,405,286.34 Thai baht Set the amount in a 90-day deposit at a Thai bank. The amount set in the Thai bank deposit will mature after the 90 days at a rate of 3.75% 3.75 x 4,405,286.34=165,198.2 4 100 The interest = 165,198.24 Thai baht The total amount that matured = 4,405,286.34 + 165,198.24 =4,570,484.58 The total amount to be sold forward =4,570,484.58 Thai baht In those 90-days, convert the Thai baht to U.S. dollars at the quoted forward rate of $0.0225 per Thai baht 4,570,484.58 x 0.0225=102,835.90 =$102,835.90 The amount that would be available in a 90-days in case the money was placed in a U.S. deposit: 2 x 100,000=2,00 0 100 Total amount = 100,000 +2,000 = 102,000 = $ 102,000 profit is the excess amount above what you could generate by investing in the U.S. money market. Amount generated in 90 day Thai deposit = $102,835.90 Amount that could have been placed in a U.S. deposit =$ 100,000 $102,835.90-$100,000 = $2,835.90. 4. Arbitrage opportunities disappear soon after they have been discovered because when they become available, many market participants recognize them and start engaging in arbitrage, making the supply and demand for the foreign currency surge, and thus making the arbitrage opportunity disappear[Evr13]. For a case where the purchase and sale of the Thai baht was catapulted by the covered interest arbitrage, there would be an upward pressure placed on the spot rate of the Thai baht, and simultaneously the Thai baht forward rate would be subjected to a downward pressure in such a way that covered interest rate becomes impossible. Interest rate parity exists at this point making the premium rate or discount offset the interest rate differential amongst the two countries (U.S. and Thailand). INT 620 Module Ten Homework Guidelines and Rubric Read the \"Blades, Inc. Case\" on page 215 in Chapter 6 of your textbook. Answer the five questions at the end of the case on page 216. Your answer for each question should be no more than one to two short paragraphs, and your answers do not require any calculation. Guidelines for Submission: Your submission must be submitted as a 1- to 2-page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least three sources cited in APA format. Three different hedging techniques are discussed in the final submission. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Direct or Indirect Intervention Sterilized or Nonsterilized Intervention Impact on U.S. Levels of Inflation Proficient (100%) Response correctly indicates if the intervention effort was indirect or direct and explains choice with sound reasoning Response correctly indicates what type of intervention was performed by the Thai government, details the differences between types of intervention, and discusses which type would be more effective in increasing the value of the baht, including an explanation Response thoroughly examines the potential impact on U.S. inflation if the Thai and USD exchange rate was fixed, shares opinion regarding the impact on different firms, and discusses how some companies are affected by a fixed exchange rate Needs Improvement (70%) Response indicates if the intervention effort was indirect or direct, but chooses incorrect type, does not explain choice, or reasoning is flawed Response indicates what type of intervention was performed by the Thai government, but chooses incorrect intervention or does not address other elements of the question Not Evident (0%) Does not respond to question Value 18 Does not respond to question 18 Response discusses the potential impact on U.S. inflation of virtually fixing the Thai baht with respect to the dollar, shares opinion regarding the impact on different firms, and discusses how some companies are affected by a fixed exchange rate, but response is inaccurate or incomplete Does not respond to question 18 Disadvantages Associated With Floating Exchange Rate System Response discusses potential disadvantages of the floating exchange rate system in Thailand, comments on whether and to what extent company contributes to disadvantages, and reviews the impact of such an exchange rate on companies such as Blades Impact of Swap Arrangement on Thai Baht's Value Response indicates the impact of the swap arrangement on the Thai baht's value and discusses the impact of the swap on Blades Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Response discusses potential disadvantages of the floating exchange rate system in Thailand, comments on whether and to what extent company contributes to disadvantages, and reviews the impact of such an exchange rate on companies such as Blades, but response is inaccurate or incomplete Response predicts the impact of the swap arrangement on the Thai baht's value and discusses the impact of the swap on Blades, but response is inaccurate or incomplete Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not respond to question 18 Does not respond to question 18 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 10 Total 100% INT 620 Module Ten Homework Guidelines and Rubric Read the \"Blades, Inc. Case\" on page 215 in Chapter 6 of your textbook. Answer the five questions at the end of the case on page 216. Your answer for each question should be no more than one to two short paragraphs, and your answers do not require any calculation. Guidelines for Submission: Your submission must be submitted as a 1- to 2-page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least three sources cited in APA format. Three different hedging techniques are discussed in the final submission. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Direct or Indirect Intervention Sterilized or Nonsterilized Intervention Impact on U.S. Levels of Inflation Proficient (100%) Response correctly indicates if the intervention effort was indirect or direct and explains choice with sound reasoning Response correctly indicates what type of intervention was performed by the Thai government, details the differences between types of intervention, and discusses which type would be more effective in increasing the value of the baht, including an explanation Response thoroughly examines the potential impact on U.S. inflation if the Thai and USD exchange rate was fixed, shares opinion regarding the impact on different firm