FIN 4634 FSU Wk1 International Business in Mexico Questions Discussion Textbook: International Financial Management 11th Edition Jeff Madura 978-0-538482

FIN 4634 FSU Wk1 International Business in Mexico Questions Discussion Textbook: International Financial Management 11th Edition

Jeff Madura

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Read Chapters 1, 2, & 3

Chapter 1

a. Discuss the corporate control of your business. Explain why your business in Mexico is exposed to agency problems.

b. How would you attempt to monitor the ongoing operations of the business?

c. Explain how you might be able to use a compensation plan that limits the potential agency problems?

d. Assume that you have been approached by a competitor in Mexico to engage in a joint venture. The competitor would offer the classroom facilities (so that you would not need to rent classroom facilities), while your employees would provide the teaching. You would split the profits with this business. Discuss how your potential return and your risk would change if you pursue the joint venture.

e. Explain the conditions that would cause your business to be adversely affected by exchange rate movements.

f. Explain how your business could be adversely affected by political risk.

Chapter 2

Your business provides CDs for free to customers who pay for the English courses that you offer in Mexico. You consider the idea of mass production of the CDs in the U.S., so that you can sell (export) them to distributors or to retail stores throughout Mexico. You would price the CDs in dollars when exporting them. The CDs are not as effective without the teaching, but can be useful to individuals who want to learn the basics of the English language.

a. If you pursue this idea, explain how the factors that affect international trade flows (identified in Chapter 2) could affect the Mexican demand for your CDs. Which of these factors would likely have the largest impact on the Mexican demand for your CDs? What other factors would affect the Mexican demand for the CDs?

b. If you believe the Mexican government would impose a tariff on the CDs exported to Mexico, how could you still execute this business idea at a relatively low cost while avoiding the tariff? Describe any disadvantages of this idea that would avoid the tariff.

Chapter 3

Assuming that the business in Mexico grows, explain how financial markets could help to finance the growth of the business. FIN4634 Course Project
International Investing Project
This project helps you to understand the factors that influence the performance of
MNCs and foreign stocks. The focus in grading this project will be on the explanations
provided by you, not on the movements in the stock prices or exchange rates.
This is a project to be completed by the end of the semester (see due dates in Class
Schedule). To ensure you are working on this project during the term you will be asked
to provide weekly updates. These updates are part of your grade.
This project allows you to learn more about international investing and about firms that
compete in the global arena. You will be asked to create a stock portfolio of at least two
U.S.-based multinational corporations (MNCs) and two foreign stocks. You will monitor
the performance of your portfolio over the school term. The explanations will offer
insight into what is driving the valuations of the U.S.-based MNCs and the foreign stocks
over time.
Select two stocks of U.S.-based MNCs that you want to include in your portfolio.
If you want to review a list of possible stocks or do not know the ticker symbol of
the stocks you want to invest in, go to the website http://biz.yahoo.com/i/, which lists
stocks alphabetically, or to http://biz.yahoo.com/p/, which lists stocks by sectors or
industries. Make sure that your firms conduct a substantial amount of international
business.
Next, select two foreign stocks that are traded on U.S. stock exchanges and are not from
the same foreign country. Many foreign stocks are traded on U.S. stock exchanges as
American depository receipts (ADRs), which are certificates that represent ownership of
foreign stock. ADRs are denominated in dollars, but reflect the value of a foreign stock,
so an increase in the value of the foreign currency can have a favorable effect on the
ADR’s value. To review a list of ADRs in which you may invest, go to www.adr.com.
Click on any industry listed to see a list of foreign companies within that industry
that offer ADRs and the country where each foreign company is based. You should
select ADRs of firms that are based in any of the countries shown on the website
http://finance.yahoo.com/intlindices. Click on any company listed to review background
information, including a description of its business and its stock price trend over the last
year. It is assumed that you will invest $10,000 in each stock that you purchase.
List your portfolio in the following format:
You can easily monitor your portfolio using various Internet tools. If you do not
already use a specific website for this purpose, go to http://finance.yahoo.com/?u and
register for free. Follow the instructions, and in a few minutes you can create your own
portfolio tracking system. This system not only updates the values of your stocks, but
also provides charts and recent news and other information on the stocks in your
portfolio.
Evaluation
For the Course Research paper you should evaluate the performance and behavior of
your stocks.
1.
Determine the percentage increase or decrease in each of your stocks over the
period of your investment and provide that percentage in a table like the one below. In
addition, offer the primary reason for this change in the stock price based on news
about that stock or your own intuition. Was it because of the markets where your firms
do their business or because of firm-specific conditions? To review the recent news
about each of your stocks, click on http://finance.yahoo.com/?u and insert the ticker
symbol for each firm. Recent news is provided at the bottom of the screen.
2.
Determine whether the performance of each of your U.S.-based MNCs is driven by the
U.S. market. Go to the site http://finance.yahoo.com/?u and insert the symbol for your
stock. Once the quote is provided, click on Chart. Click on the box marked S&P (which
represents the S&P 500 Index). Then, click on Compare and assess the relationship
between the U.S. market index movements and the stock’s price movements. Explain
whether the stock’s price movements appear to be driven by U.S. market conditions.
Repeat this task for each U.S.-based MNC in which you invested.
3.
a. Determine whether the performance of each of your foreign stocks is driven by the
corresponding market where the firm is based. First, go to the site
http://finance.yahoo.com/intlindices?u and look up the symbol for the country index of
concern. For example, Brazil’s index is ^BVSP. Next, go to the site
http://finance.yahoo.com/?u and insert the symbol for your stock. Click on Chart; at the
bottom of the chart, insert the corresponding market index symbol (make sure you
include the ^ if it is part of the index symbol) in the box. Then, click on Compare and
assess the relationship between the market index movements and the stock’s price
movements. Explain whether the stock’s price movements appear to be driven by the
local market conditions. Repeat this exercise for each foreign stock in which you
invested.
b. Determine whether your foreign stock prices are highly correlated. Repeat the
process described above, except insert the symbol representing one of the foreign
stocks you own in the box below the chart.
c. Determine whether your foreign stock’s performance is driven by the U.S. market
(using the S&P 500 as a market proxy). Erase the symbol you typed into the box below
the chart, and click on S&P just to the right.
4.
a. Review annual reports and news about each of your U.S.-based MNCs to
determine where it does most of its business and the foreign currency to which it is
most exposed. Determine whether your U.S.-based MNC’s stock performance is
influenced by the exchange rate movements of the foreign currency (against the U.S.
dollar) to which it is most exposed. Go to www.oanda.com and click on FXHistory. You
can convert the foreign currency to which the MNC is highly exposed to U.S. dollars and
determine the exchange rate movements over the period in which you invested in the
stock. Provide your assessment of the relationship between the currency’s exchange
rate movements and the performance of the stock over the investment period. Attempt
to explain the relationship that you just found.
b. Repeat the steps in 4a for each U.S.-based MNC in which you invested.
5.
a. Determine whether the stock performance of each of your foreign firms is
influenced by the exchange rate movements of the firm’s local currency against the U.S.
dollar. You can obtain this information from www.oanda.com. You can convert the
foreign currency of concern to U.S. dollars and determine the exchange rate movements
over the period in which you invested in the stock. Provide your assessment of the
relationship between the currency’s exchange rate movements and the performance of
the stock over the investment period. Attempt to explain the relationship that you just
found.
b. Repeat the steps in 5a for each of the foreign stocks in which you invested.
Write the research paper in APA format. This format includes: title page, identifying the
subject, the authors, the course, professor, term and date. Following are the
introduction, statement of objectives, narrative body, conclusion and finally the
bibliography. If you need help with APA style there are excellent resources in
the Florida National University Library. In addition, the following is a very good online
resource: http://owl.english.purdue.edu/owl/resource/664/1 . For help with citations
visit http://www.citationmachine.net/. Many students lose grade points because they
do not take the trouble to structure, footnote or provide the paper and bibliography
correctly in APA format; don’t let this be you! Excluding the title page and bibliography,
your paper should be four to six pages in length double-spaced. Times New Roman, font
size 12.
Project Weekly Activities Content
1.
This is the Course Research Paper interim weekly activity for WEEK 1. Click on title link when ready to
submit.
This week you need to choose two domestic stocks and two foreign stocks as per the Course
Research Paper Instructions. You must prepare a schedule similar to the one below in Excel and submit
the file via BlackBoard. The file naming convention is “LastName_interim_crpW#.xls. Please note that
this activity is the only one that is not extended to Week 2. The due date for this assignment is listed in
the “Course Schedule”. NO LATE SUBMISSIONS WILL BE ACCEPTED. Do not lose points by not
submitting on time since you need to chose your stocks to follow regardless.
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