Unit 4 Course Project: International Management

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Unit IV Course Project

Country Analysis: Essay
Utilizing CSU Online Library, research the business and country selected in Unit I. Then, go to https://www.cia.gov/library/publications/the-world-factbook for additional research of facts and data.
Prepare a Word document of the general background information regarding the country selected (e.g., surplus, deficits, crisis, and potential corruption of the country, with more emphasis on recent events). In a minimum of 500 words, be sure to include the following:

1. country’s currency structure;

2. institutional factors including size of the economy and domestic investor base, which may lead to success or high risk in your venture of business expansion to that region; and

3. flexibility of exchange rate regimes.

Use your textbook plus an additional 3 sources as references to support your submission. All paraphrased and quoted material must have accompanying citations.

BBA 4301, International Finance 1

Course Learning Outcomes for Unit IV

Upon completion of this unit, students should be able to:

6. Discuss how governments control the flow of currencies across borders, including international
investments.
6.1 Assess foreign currency futures, forward contracts, valuation, and buying and writing options.
6.2 Evaluate interest rate risk and swaps and demonstrate their management.
6.3 Assess technical analysis, forecasting, and the combination approach to exchange rate

determination.

Reading Assignment

Chapter 7: Foreign Currency Derivatives and Swaps

Chapter 8: Foreign Exchange Rate Determination

Unit Lesson

Labels and methods of currency valuation vary across international borders (Moffett, Stonehill, & Eiteman,
2015). For example, Mexico’s medium of exchange is known as the peso, and Switzerland’s medium of
exchange is identified as the franc. However, not all mediums of exchange involve currencies. Other mediums
include assets, such as stocks or bonds. These mediums are commonly referred to as derivatives. Financial
tools, such as derivatives, play a prominent role in multinational business operations and contracts.

Types of derivatives include foreign currency futures, currency options, option pricing and valuation, interest
rate risk, and interest rate derivatives (Moffett et al., 2015). These investments or alternative instruments carry
risks but can also be very lucrative opportunities. However, market participation requires a knowledgeable
approach.

Foreign currency futures center on providing a future exchange rate for a fixed time, place, and price. More
importantly, foreign currency futures’ conditions are based by the exchange on which futures are traded.
Components of foreign currency futures include the contract size, stating the method of exchange rates,
maturity date, last trading day, collateral and maintenance margins, settlement, commissions, and use of a
clearinghouse.

Currency options are established by an agreement allowing the purchaser an opportunity to buy or sell
currency at a set price per unit for a specified timeframe. Currency options are comprised of three elements:
exercise price, premium, and spot exchange rate. The use of currency options is a growing practice of foreign
exchange activity.

Option pricing and valuation combine currency options into intrinsic and time value. The options are non-
binding. Option pricing and valuation utilize a combination of six elements, including present spot rate, time to
maturity, forward rate for matching maturity, U.S. dollar interest rate, foreign currency interest rate, and
volatility. An analysis of option pricing leads to the complete value equal to the intrinsic value and time value.

Interest rate risk involves fluctuation of rates that make all firms sensitive to the uncertainty. Debt service is
considered the largest risk for nonfinancial firms while the MNE risk increases with multicurrency dimensions.
Therefore, interest rates derivatives, such as swaps and interest rate futures, are alternatives applied in many
transactions to minimize risk.

UNIT IV STUDY GUIDE
Foreign Currency Derivatives and Swaps and
the Foreign Exchange Rate Determination

BBA 4301, International Finance 2

UNIT x STUDY GUIDE

Title

Market participation is predicated upon the established foreign exchange rate. The determination of the rate
includes parity conditions, asset approach, and balance of payments (Moffett et al., 2015). The rate is a
reflection of external and internal forces such as infrastructure weaknesses and foreign-political risks. For
example, the alleged ISIS militant group in Syria became a dominant market-influencing factor that
heightened tension in the 2014 political climate (Huddleston, 2014).

As indicated in Unit III, purchasing power parity is a well-established framework for determining rates. This
framework includes the law of one price, absolute purchasing power parity, and relative purchasing power
parity (Moffett et al., 2015).

The law of one price suggests that similar goods are sold for the same price in different markets after the
conversion of currency. For example, continuing on within the vein of climate tension of the ISIS militant group
was their control and disruption of oil prices. Rates differed from region to region. Oil Prices in the Middle East
were higher, while North America benefited from somewhat lower prices (Dowd, 2014). However, after the
consideration and exclusion of these events, a price analysis should reveal a similar market rate of oil.

Absolute purchasing power parity concepts assert that the exchange rate mirrors the ratio price points

between two countries. For example, the U.S. wireless service and advisory leader for

PricewaterhouseCoopers reports that the cost of an Apple iPhone is virtually the same in the U.S., Germany,

and Japan (Yamshon, 2013). Therefore, once the exchange rate is excluded, prices should be same.

Relative purchasing power parity, considered the most significant, suggests change drives rates and prices.

For example, research indicates that as life spans increase, consumers are becoming more conscientious of

health benefits from daily exercise (Gleick, 2004). Therefore, demand for sports and energy drinks as well as

bottled water is increasing. The relative purchasing power parity suggests the change in demand for bottled

water impacts the cost-per-unit per country. Hence, the percentage change in price is equivalent to the

difference in the rates.

The balance of payments approach argues that the equilibrium exchange rate is found when the net inflow
matches outflow from financial activities. The country of India has a strong presence in the computer software
and service industry. Therefore, if Wal-Mart (U.S. company) purchases $1 million of India’s software
packages, there is a parallel entry of money exchange to the Indian producer.

The asset approach maintains that rates are determined by supply and demand for financial assets (Moffett et
al., 2015). Furthermore, this approach facilitates the assumption that foreign investment hinges on a variety of
market forces and considerations. However, accuracy in forecasting exchange rate values is limited.
Therefore, technical analysis requires assessing trends in pricing.

A knowledge base of foreign exchange theory and markets in conjunction with foreign exchange rates is
beneficial. The knowledge base aids in risk management naturally associated with international investments.
Risk management provides alternatives.

References

Dowd, J. (2014). ISIS and oil prices. Retrieved from https://www.fidelity.com/viewpoints/investing-ideas/ISIS-

and-oil-supply

Gleick, P. H. (2004). The myth and reality of bottle water. In The world’s water, the biennial report on

freshwater resources: 2004-2005. Retrieved from http://pacinst.org/wp-
content/uploads/sites/21/2013/04/myth_and_reality

Huddleston, T. (2014). Big sell-off on Wall Street as fears of global crisis weigh. Retrieved from

http://fortune.com/2014/10/01/dow-jones-down-market-sell-off-october/

Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2015). Fundamentals of multinational finance (5th ed.).

Boston, MA: Pearson Education.

Yamshon. L. (2013). No, U.S. Smartphone costs aren’t highest in the world. Retrieved from

http://www.techhive.com/article/2046003/no-u-s-smartphone-costs-arent-highest-in-the-world.html

Running head: UNIT I COURSE PROJECT 1

UNIT I COURSE PROJECT 4

Unit I Course Project

Country Analysis: Research Proposal

Expansion of Business Operations

Apple Inc. The company is a global firm that designs, develops, and vends consumer electronics and computer software (Levy, n.d.). It also deals in online services such as IOS, Mac, Apple Store, iTunes, and Apple Music. The company’s headquarters is located in California. The company is popular for its marketing strategies for its goods and its series of personal computers.

Apple Inc. was founded in 1976 by Steve Wozniak and Steve Jobs. The Corporate uses the logo of a bitten Apple which was inspired by Newton. Being a multinational Company, Apple is expanding its business operations across the world (Moffett, Stonehill, & Eiteman, 2015). For this assignment, I selected the United Kingdom as a nation for international expansion of Apple Company’s business operations.

The United Kingdom’s Historical Outline

The United Kingdom is popular for the role it played in advancing science and literature and in developing democracy in parliament. In the 20th century, the United Kingdom’s strengths were washed-out in the two world wars and the withdrawal of the Irish Republic from the union (Factbook, C. I. A. 2012). However, later on in the century, the United Kingdom was able to rebuild itself into a current successful European nation. As a founding member of the Commonwealth and the NATO and one of the perpetual members of the United Nations Security Council, the United Kingdom follows a global approach to foreign policy.

Since 1973, the United Kingdom has been an active participant of the EU but outside the Monetary and Economic Union. However, the nation intends to leave the EU since it is frustrated by the huge migration into the country and the remote bureaucracy in Brussels. In respect to this, the UK’s citizens voted to leave the EU on 23rd June 2016. As a result, the United Kingdom is currently negotiating its withdrawal terms with the European Union. Other key events in the United Kingdom include its participation in World War I in 1914 when it entered hostilities against Germany (United Kingdom profile, 2012). During World War II in 1939, The United Kingdom declared war against Germany. However, in 1945, the United Kingdom surrendered the war. Also, a labor leader, Clement Atlee was elected in 1945.

The United Kingdom is the third biggest economy In Europe after France and Germany. Its agriculture is highly mechanized and produces up to 60% of its food needs. Also, the United Kingdom is the leading fishing nation in Europe. The United Kingdom is a major source of multilateral and bilateral aids to third world nations. The nation also has large energy sources such as coal which adds to the nation’s economy.

Size and Location

The United Kingdom is located in the West of Europe and a sixth of the Ireland Island in the north. The UK is situated between the North Sea and the North Atlantic Ocean in Europe. Its geographic coordinates are 54 00 N, and 2 00 W. The United Kingdom covers a total area of 243, 610 square kilometers where land makes up to 243,930 square kilometers and water 1,680 square kilometers.

Climate, Terrain, and Land Use

The United Kingdom has a moderate temperature which is influenced by the prevailing southwest winds that blow over the North Atlantic Current. The nation’s terrain includes low lying mountains and rugged hills that level to rolling plains in the southeast and east of the country. Most of the land in the United States is used for agriculture which amounts to 71% of the total land while forests make up 11.9 % of the total land. The remaining 17.1 % is used for other land uses such as construction.

Population

The United Kingdom has a total population of 65,648,100 people. Most of this populace is distributed around London. The remaining population is distributed in clusters in areas such as Manchester, Liverpool, Edinburgh, Cardiff, and Belfast.

References

Levy, S. Apple Inc. | American company. Retrieved from:

https://www.britannica.com/topic/Apple-Inc

Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2015). Fundamentals of multinational finance (5th ed.). Boston, MA: Pearson Education.

United Kingdom profile. (2012). Retrieved from:

http://news.bbc.co.uk/2/hi/europe/country_profiles/1038820.stm

Factbook, C. I. A. (2012). The World Factbook. Central Intelligence Agency.

Retrieved from:

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

Running head: UNIT II COURSE PROJECT 1

UNIT II COURSE PROJECT 4

Unit II Course Project

Country Analysis: Essay

The business that is going to be discussed is the Apple Company which for a long time the firm has dominated the market due to its innovation. It is a global organization that has branches all over the world (Moffett, Stonehill & Eiteman, 2015). The nation of operation that is going to be elaborated in the United Kingdom. It is a nation where Apple has enjoyed success and had a market share of 26.2 percent. The percent indicates the market dominance enjoyed by the company which it is aiming to improve. The use of innovation is one apple company using to fulfill customers’ tastes and also make themselves competitive in the market.

Background and economic strategy

Apple Company was started back in 1976, by two college dropout who changed how people view computers. The primary objective was to make portable computer one which can be used at home or offices. The company went through tough times and even made fewer profits which forced the founders to quit and seek green pastures. The company faces stiff competition from the Windows operating system. In 1997, the company developed the Mac version as the operating system which is used to date as the software. Apple company focuses mainly on electronics such as iPod, tablet, laptop, Apple TV, mobile phones among others.

They are a various economic strategy used by Apple company which aims at strengthening the company and making it competitive. Protection of the company information is one of the priority. The firm has set various measures to ensure the data generated is secure and confidential. One of the methods used is the adoption of biometric. Biometric is used to secure companies operations and improve the level of confidentiality in the entire organization. Another process is company adoption of copyright and patenting activities. This is to curb any malicious activities of an individual or group. The main malicious activity prevented mostly against is copyright which may influence with the quality of the products in the market. Another is the use of firewalls that helps in eliminating unwanted materials that would corrupt the system. It helps the company remain competitive in the market.

National goals

The United Kingdom also is known as England or Great Britain is one of the leading on an economic standpoint due to its influence in the international relations. The nation has various goals which suit any foreign company. Some of the national goals include; to have a stable global system that is under the leadership and guidance of the UN. Another promotes the economic interest of the United Kingdom. Also, minimizing the risks of transnational crime and aims at promoting peace. All the above-identified national goals ensure that Apple Company can run its operations.

National trade policies

Trade is one of the United Kingdom economic backbones. The primary trading partner is the United States which makes it more comfortable for Apple company to fit and perform its operations (“United Kingdom – Trade”, 2018). Some of the trade policies supported by the nation are liberalization. Another is labor and taxation. Government generates revenue from the tax on the goods and services.

Emerging Trends

In 2016 the economy of both Germany was among the leading nations. In 2017, the figure changed, and UK GDP has reduced (“United Kingdom Economy – GDP, Inflation, CPI and Interest Rate”, 2018). Also, it is predicted that the country is going to experience inflation which will be caused by the depreciation of the sterling. Another is the effects of Brexit on the economy of the nation.

References

Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2015). Fundamentals of multinational finance (5th ed.). Boston, MA: Pearson Education.

United Kingdom Economy – GDP, Inflation, CPI and Interest Rate. (2018). Retrieved from:

https://www.focus-economics.com/countries/united-kingdom

United Kingdom – Trade. (2018). Retrieved from:

https://www.britannica.com/place/United-Kingdom/Trade

Running head: UNIT III COURSE PROJECT 1

UNIT III COURSE PROJECT 4

Unit III Course Project

Country Analysis

The company selected for this paper is Apple and the region is the United Kingdom. It is a nation that is located in Europe and has a good relationship with the United States. Apple is a company that has been successful in the market at the national and international level. It is a nation that has a strong economy. The company management has to devise a plan to adapt to the changing global environment in a foreign nation. The main aim of the organization is to improve the market share and realize a profit (Moffett Stonehill, & Eiteman, 2015). Apple company uses various strategies in the market to run its operations smoothly. Collaboration is an essential tool to the success of the company operations. Partnerships involve company relation with all the stakeholders who are part of the company success. The list of Apple company stakeholders includes government, shareholders, employees, distributors, among others. The company has ensured there is a good relation with all stakeholders by promoting constant communication. It ensures that all stakeholders are familiar with company progress and involved in the process of decisions making. The management also ensures to use an approach that favors people from different background (O’Rourke, 2012).

Culture and Belief systems.

The United Kingdom is comprised of four different nations which include Wales, England, Scotland, and Northern Ireland (Studlar, 1999). There is diversity in the culture with people from different background. The big population comprises of white who are approximate 87.2% percent and 3 percent blacks with mixed heritage, Pakistan comprises of 1.9 percent, British Indian area 2.3 percent, and others area 3.7% percent. The big population of the people in the United Kingdom is white or individuals with British heritage. Hence Apple needs to produce products that favor the majority in the region to succeed and make a profit. Christianity is the main religion in the United Kingdom and enjoys 59.5 % percent. It is the leading religion which is followed by Hinduism, Sikhism, Judaism, and Buddhism. Hence Christianity is the main group. It is a monarch and a parliamentary system type of governance. The country has various political parties. Hence, it is a multiparty country.

Historical Significance

There are various historical events that can affect the operations of the Apple Company. One of the historical events is withdrawal from the EU. From 1973 United Kingdom has been an active EU member since the economic block was formed. On 23rd June 2016, United Kingdom citizen voted on the favor of leaving the EU. This is a move that can affect the business operations due to the imposition of customs duties. Also, it can weaken their currency which can directly affect Apple Company.

Other events

The big population lies between the ages of 25-54 who are 40.55 % percent of the total population. The number of the male is slightly higher than that of the female. Most of the business products should be designed to fit the higher population in the entire region. The rate of dependency is high which is 55.5. It is a value that concerns the operations of the business. The rate of dependency is divided between youth and elderly who have a value of 27.4 and 28.2 respectively.

Reference

Factbook, C. I. A. (2012). The World Factbook. Central Intelligence Agency.

Retrieved from:

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2015). Fundamentals of multinational finance (5th ed.). Boston, MA: Pearson Education.

O’Rourke, M. (2012). Inside Apple: How America’s Most Admired–and Secretive–Company Really Works. Risk Management, 59(2), 43-44.

Studlar, D. T. (1999). Unwritten rules: Britain’s constitutional revolution. Harvard International Review, 21(2), 48.