The purpose of the project:

In this project, you expect to analyze the impact of macroeconomics factors (e.g., foreign exchange rates, interest rate, inflation, central bank policies) and multinational financial management (e.g., various hedge techniques for foreign exchange risk) of a publicly traded multinational corporation (MNC) of your choice. You can use a mix of real data (if available) and/or hypothetical data (if the real data is not available) for this project. Real data is always preferred if they are available. But a firm might not disclose its business associated with a particular country (currency) of your concern. In such a situation, you can make reasonable estimates to obtain hypothetical data to help you analyze some of the issues expected in this project.

Your team is expected to inform the instructor of a publicly traded MNC that you choose for your final project. The selected MNC should have a significant proportion of sales from overseas and from the country/region that you will select its currency. Each group is expected to analyze a different MNC. If several teams choose the same MNC, the team who informs the instructor first has priority to use the company.

After you choose an MNC, then select a major currency from the following list. The selected MNC must have a significant proportion of the business dominated by the selected currency.

• Australian Dollar (AUD)
• British Pound (GBP)
• Canadian Dollar (CAD)
• Euro (EUR)
• Japanese Yen (JPY)
• Swiss Franc (CHF)
• New Zealand Dollar (NZD)
• Mexican Peso (MXN)

exxon mobil is the company,base country is Germany and currency euro

The Outline for the project:

1. Executive summary (10 points)

Summarize the major findings, results, and the analysis of your final project report.

1. Financial analysis of the MNC's overseas business (30 points)

You are expected to retrieve the most recent 3-5 years' financial statements for the selected MNC from the Mergent online database or other sources. Then calculate and analyze the MNC's overseas revenue and profits as well as other key financial indicators that measure the firm's international business. Perform a trend analysis of these key financial indicators related to the MNC's overseas business for 3-5 years. The analysis must cover both (1) the aggregate overseas business from all foreign countries, and (2) the business in the particular home country which you have selected its currency as the major currency for your project..

1. Assessing the country factor and political risk that will affect the demand for the MNC's products/services (30 points)

(1) Identify the country factors and political risk that can affect the balance of trade between the U.S. and the country that the MNC has business. Explain how each of these factors may affect the demand for the MNC's products/services. You can also assess the trade data between the two countries, and the import/export controls set by that country's government. Determine whether the business is affected by trade regulations.

(2) Monitoring Central Bank Intervention: How can the MNC's business be affected if the central bank (e.g., Federal Reserve Bank) attempts to strengthen U.S. dollar in the foreign exchange market? If the Fed decides to weaken the dollar, how will the business be affected? How can indirect central bank intervention affect the business even if there is no impact on exchange rates? Go to the website of the central bank in your target country and determine whether the central bank intervenes to control its currency in the foreign exchange market. Did it work well to achieve the desired goals?

(3) Monitoring the foreign exchange rate trends: Determine how the value of the foreign currency of concern has changed in each of the last 5-8 weeks. Does it appear that there is a trend over the last 5-8 weeks? What is the mean percentage change over these weeks? If you believe that the currency's value would continue following the recent trend, would it appreciate or depreciate in the near future?

1. Using the Foreign Exchange Market (30 points)

(1) Using the spot market for business: What bank does the MNC use to exchange the foreign currency received for dollars (Just choose a major bank if you cannot find this information)? What is the bid/ask spread on a recent quotation by that bank? Call the bank to obtain quotations if necessary. Did the MNC need the forward market? Explain.

(2) Accessing forward rates quotes: Find the prevailing forward rates of the foreign currency. Explain how the forward rates have changed over the last three months and the last year. What is the discount or premium?

(3) Accessing futures quotes: Find the prevailing futures price of the foreign currency and analyze its trend over the last three months and the last year.

(4) Assessing recent changes in currency options: Explain how the options (calls and puts) on the currency that you have selected have changed over the last three months and the last year?

1. Test whether Interest Rate Parity (IRP) and International Fisher Effects (IFE) hold (30 points)

(1) Obtain a quotation for the spot rate of the selected foreign currency from the bank where the MNC conducts foreign exchange transactions. Then, obtain a quotation for the spot rate of the foreign currency from another bank. Does it appear that the spot rates are aligned across locations at a given point in time? Do you think triangular arbitrage can make profits? If so, how to do that?

(2) Obtain a quotation for the one-year forward rate of the foreign currency from the bank where the MNC conducts foreign exchange transactions. Then find the prevailing one-year interest rates in the United States and the foreign country. Does it appear that the Interest Rate Parity (IRB) exists?

(3) Review the data on forward rates to determine whether the foreign currency of concern typically exhibits a discount or a premium. Then review data on interest rates to compare the foreign country of concern and the U.S. interest rates. Does it appear that the forward rate of the foreign currency exhibits a premium (discount) when its interest rate is lower (higher) than the U.S. interest rate, as suggested by the Interest Rate Parity (IRP)?

(4) Use the Wall Street Journal or other data sources to record the interest rate differential between the interest rate of the foreign country in which the MNC does business and the U.S. interest rate over the last 5-8 quarters. Then review the exchange rate percentage change in the foreign currency of concern over each of those corresponding quarters to determine whether the international Fisher effect (IFE) appears to hold for that currency.

1. Manage the MNC's foreign exchange risk (50 points)

(1) Recognize the MNC's foreign exchange risk: Analyze the MNC's accounts receivables denominated in the foreign currency of your concern. Describe the MNC's exposure to various foreign exchange risks. That is, describe the exchange rate conditions affecting the performance of the MNC's business in that country. Is the business subject to transaction exposure? translation exposure? Explain how the MNC's business is or is not subject to each of these types of exposure. How does the firm use various financial and operational hedging strategies to manage its foreign exchange rate risk. Use hypothetical data for the hedging strategies below if the real data is not available.

(2) Hedging with Forward Contracts: Given the firm's exposure to exchange rate risk, use an example to explain how the firm could use forward contracts to hedge its foreign exchange risk.

(3) Hedging with options contracts: Use an example to explain how the firm could use currency options to hedge its foreign exchange risk.

(4) Money market hedge: Use an example to explain how the firm could use money market hedge to manage its foreign exchange risk.

(5) Does the MNC use any operational hedging techniques for the foreign exchange risk? If no, use a hypothetical case to discuss operational hedging techniques used by MNCs.

1. Summary (10 points)

Summarize the major conclusions of your overall analysis. Discuss the competitive status as well as major risk/problems of the MNC in the global market. Discuss the implications and limitations of your analysis and list the references that you have used in your project.