You have been appointed as an advisor to a leading pharmaceuticals manufacturing company MPL - a hypothetical company) established in Malaysia. The company owns a number of reputable vitamin product lines and few Tropical Medicinal product lines which have been protected by international patent right law. The company having greater demand for its products due to current COVID-19 pandemic. However, the fluctuating foreign exchange rate also a greater issue which the company need to address. The company management approaches you and seeks your advice on adjusting its international business and financing activities to face the current global market trends.

The company currently engages in export and import activities using a well-linked international network of agents. The company distributes its product in India, Thailand and United Arab Emirate (UAE) using its own subsidiary and in other south-east countries by using their nominated agents. In addition, they also have a very good presence in the cyber market.

However, the on-going global health crisis has a significant effect on both the firm operation and the cash flow positions. Especially, high volatility of the local currency value in the foreign exchange market have undermined the firm's ability to manage its cash flow positions. On this background, the company have decided to revamp its international trade and finance strategy.

At present, the company uses MYR as their international trading currency. MPL allows three months to settle with their foreign customers. The company's suppliers allow settle their suppliers' invoices in Six months. However, the fluctuation of other currency values against the MYR have forced the company to re-think its invoicing policy. Since, most of its foreign suppliers are invoicing their products in United State's dollar (USD), the management of the company expects invoicing its exports in USD or the currencies used in trading partners' countries. The company management believe, this change will help them to minimise the adverse effect of foreign currency value changes.

MPL expects to expand its operations in India, Thailand, and UAE. In , they plan to establish their own network of small retail outlets in leading supermarkets. Most products for proposed outlets network in UAE are expected to be shipped from its current manufacturing facility in Malaysia.

Currently, the company sources some raw-materials from India. A feasibility study conducted last year revealed that locating a manufacturing plant in India would bring a huge cost advantage on both labour and materials. Therefore, the company will construct a state of the art manufacturing facility in India to produce some of its vitamin products using local labour and materials. The Indian operation will be used to satisfy the growing demand in South-East Asia.

MPL's policy is to review the cash flow situation of all its subsidiaries in every three months and remit any excess cash balances to the head office in Malaysia. Currently, excess cash are transferred any time whenever the subsidiary cash balance exceed the allowed limit. Consequently, the parent in Malaysia transferred cash to the subsidiaries when they are short in cash.

In light of the above background information, you are required to develop a management advisory report addressing the following issues.

Introduction - 30 points

Read Chapter 1 and study session 1 notes and complete the following

1. Identify the main objective of the MPL, the internationalisation objectives (motive for internationalisation), the strategies used for internationalisation (mode of internationalisation), types of cash flows, types of foreign exchange risk exposures which the MNC is facing.

2. Apply internationalisation theories (comparative advantage, product life cycle and imperfect market) to illustrate the possible motives for having foreign operation in India, Thailand, and UAE.

3. Explain possible advantages and disadvantages of MPL's current international trading strategy (subsidiary in India, export & import and online presence).

4. Identify the other main players in the industry which MNC operated and their strategies. Identify most competitive strategy for the MNC to be success in the industry. Identify possible long-term and short term goals for MPL.

5. Why do you think establishing a foreign subsidiary is more appropriate than the other available modes of internationalisation? Explain possible advantages MPL can enjoy through a foreign subsidiary.

Country Analysis - 30 points

Read Chapter 13 and 14 of your text book and complete the following

1. Explain how COVID-19 is different from the other previous crises.

2. Select two countries where the MPL doing business and write a report on how COVID-19 has shaped current market condition of those two countries. You are required to critically evaluate the economic and financial environment, and the prospects of your chosen country before and during the COVID-19. For your discussions, you can use two of the areas of money market, capital market, good and services market and the foreign exchange market, GDP growth, inflationary prospects and the wages and employment conditions. You may use tables and graphical exhibit to present your information).

3. Identify the austerity measures introduced by the selected countries to minimise the adverse impact of COVID-19. Evaluate how such measures can affect to the business firms like MPL.

4. Dose COVID-19 affect the probable risk on doing business in foreign countries? Should MPL go ahead with the proposed manufacturing facility in Indonesia?. Critically evaluate.

Foreign currency cash flow management - 30 points

Read Session 6-8 lecture notes, Text book Chapters 4, 10 & 11 and complete the following

1. Evaluate the costs and benefits of the current and the proposed international invoicing policy of MPL. Can any of those polices avoid the possible adverse impact of FX rate risk.

2. Currently, MPL transact in Malaysian ringgit, Indian rupee (INR), Thai baht (THB), United State dollar(USD), and UAE dinar (AED). Out of the four foreign currencies mention above, select three currencies and download the foreign exchange rates fromthe official website of Bank of Nagara (Central Bank of Malaysia)for the three years ending 31st December 2021 ( from 1st January 2019).

3. Plot the downloaded FX rates in a line chart and identify any significant currency value movements in three currency values against Malaysian ringgits and probable causes for such movements.

4. Use the information you gathered on charts to justify your explanations on the current and the proposed international invoicing policy of MPL.

5. Identify alternative internal and external foreign exchange risk management (hedging) strategies which MPL can use to mitigate the FX risk exposure they are facing in the short-run and the long run. You need to briefly explain possible advantages and disadvantages of each strategy you have identified.

6. Estimate the followings for exchange rates which you have used for part 2. (You are required to interpret the statistics you estimated in the assignment with summary statistics and to separately submit a EXCEL worksheet with all detail calculations).

o The daily exchange rate changes (percentage changes)

o Averages and standard deviations for daily exchange rate changes for each six-month periods (starting with 2/01/2019)

o Averages and standard deviations for daily exchange rate changes for each 12-month periods (starting with 2/01/2019)

o Correlation of daily foreign exchange rate changes among three currencies in each 6-month and 12-month periods

o Using the VaR in 95% probability, evaluate currency risk faced by the PSL over the time (use the estimated average exchange rate changes and standard deviations for your calculation). Here, you are required to elaborate how the MPL operational results could have been affected by the recorded exchange rate changes.

o Critically evaluate movements of estimated average and standard deviation values and the correlation coefficients over the time. How such movements are important in managing foreign exchange risk. You need to link your discussions with the part 1 and 4 of the task three of this assignment.