Question

Assuming today was 1* January 2019. You are the chief financial officer of a US-based company which manufactures and distributes office supplies. As the competition in local market was getting stiffer despite the company's strong customer base, the Board of Directors (the Board) is considering for the company to expand its international business by penetrating to either the Canadian market or Mexican market through exporting. The company anticipates strong demand for office supplies in these two markets. Required: a) What are factors to be considered in deciding which market is more feasible? (5 marks) b) You are responsible for developing contingency plan as the selected market will impose trade barriers over time. The board is in favour of establishing a subsidiary in the country of concern under such conditions. Argue whether this plan is reasonable. Are there obvious reasons for the plan to fail? (5 marks) c) Instead of the board proposal as described in (b) that is establishing a subsidiary in either of these two markets, the company may establish subsidiary in both markets given its capacity to obtain sufficient sources of financing from the public. Argue whether this option is better than b). (5 marks) d Analyse how the exchange rate risk may affect your decision in choosing either (b) or (0) (Hint: relate your argument with diversification concept, calculate standard deviation based on the recent movement of exchange rates of the two countries, clarify the data that you use including source of data and period of analyses (i.e daily, monthly or quarterly), and reflect your decision with goal of the firm). (7.5 marks)

part d

Answer 1

Alternative in Establishing a subsidiary in only one Country which has maior concerns of economies of seale Establishing Subsidiary in each of the Alternative :- Counties to Cover its risk in over all. Exchange Rate nisk. exchange. Due to there will be is defined as the variability of a firm's value due to uncertain changes in the rate of these uncertainties; few following changes which will impact in decision making: - Desirability. - Profitability, - Current value of the pooglects of the firm. By these affects; the organisation's stocle price may also get affected.