Question

I want answer to the question, not to the givens

Assuming today was 1st 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.

Question:

Analyse how the exchange rate risk may affect your decision in choosing either *(a)* or *(b)* (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).

Givens:

*(a)* 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?

*(b)* 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).

Answer 1

Establishment of a subsidiary in another country like Canadian markets for Mexican markets can facilitate the corporate so as to avoid the the dealings risk to an oversized attainable extent as a result of dealings risk are going to be principally get absorbed within the books of its subsidiaries whereas it'll be exposed to the interpretation Risk during which the interpretation of book of subsidiary would be need to be drained books of oldsters entity.

I can be attempting to to develop an inspiration so as to extend the general sales in those 2 countries however {i can|i will be able to|i'll} be additionally attempting to avoid any reasonably dealings risk thanks to depreciation of greenbacks during this country thus i will be able to be attempting to ascertain a subsidiary or i'll attempt to enter into a venture operate through branches however operation through venture and branches will mean that the corporate will need to get exposed to the dealings risk and that they cannot incorporate those subsidiaries books into the books of accounts of the most entity as they're not holding over five hundredth of the shares and thence they're going to be exposed extremely to the dealings risk and that they cannot record translation risk by changing those figures into the books of account. it is aforesaid that {i can|i are going to be able to|i'll} be attempting to stress a lot of on institution of a subsidiary as a result of institution of subsidiary will mean that the corporate also can negate well with the trade barriers as subsidiaries will be having the house country advantage in addition.

And thence it is aforesaid that institution of subsidiaries square measure higher than institution of branches or doing business through joint ventures or different business collaboration is as a result of subsidiaries are going to be treated as separate entity within the home country and that they are going to be useful so as to avoid with fluctuations thanks to trade barriers and that they will facilitate so as to maximise its overall rate of come by management of the dealings risk in addition.

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