FINANCE ASSIGNMENT Harvard Case Solution & Analysis

FINANCE ASSIGNMENT Case Study Solution 

QUESTION NO 1:

PART A, B AND C 🙁 EXCEL SHEET 1)

  1. D) The company should consider machine number one because the net present value of the machine is greater than machine number two, and the payback period of machine number 1 is also less then machine number two.

After considering all the facts, the company should consider machine 1 for installation.

QUESTION NO 2:

(a)

When the interest rates in Australia are relatively higher than the interest rates in USA, this is positive for Australia because for the lenders and for the investors, it will become more attractive to deposit money in the banks of Australia because as the interest rates are higher in Australia, the returns from Australia are relatively better from US, which is why it would become attractive to deposit the money in their banks.

By this, the demand for sterling would increase because the more money deposited in the UK accounts, the more there would be an increase in the demand for sterling. This is very much important aspect for determining the value of currency in short run. Moreover, when there are higher interest rates, then it would lead towards an increase.

On the other hand, when there is an increase, it would increase the exchange rates for the UK. Ultimately, it would have a favorable impact on the overall exchange rate of the UK.

(b)

FOREIGN EXCHANGE RISKS:

Foreign exchange risks are the risks, which cannot be denied when we are dealing in an international market. We are living in an era where trade has become a normal practice of the businesses and dealing internationally means dealing with certain foreign exchange currency exposures. There are certain risks that multinational companies might encounter and for secure business practices, the companies should evaluate the nature of the currency risk exposures which they are going to face and take some precautionary measures to mitigate those risks.

Some of the foreign exchange risks that multinational mining company might face are:

-TRANSACTION RISK:

This is a kind of risk which affects the cash flows of the company when the exchange rates change. These are such cash flows (future) whose nominal value is known. These are the contracts which are usually made in payable and receivable manner, usually imports and exports of the company. The timeframe of transactions is relatively short and deliveries are done in the long run.

-ECONOMIC RISK;

These are the risks which usually occur due to the exchange rates movement that the company faces when it has cash flows and is determining its present value, the risks that the company faces because of exchange rates as well as the impacts on the future revenues and expenses. Moreover, the risk includes the changes that take place because of the difference in volume and price variables of the company.

FINANCE ASSIGNMENT Harvard Case Solution & Analysis

 

 

-TRANSLATION RISK:

Translation risk is a kind of risk that the company faces when it has foreign assets such as the company is operating internationally and has foreign assets mainly foreign subsidiaries. When the company has foreign assets, it also has foreign liabilities. Translation risk can be calculated when we subtract foreign liabilities from foreign assets..................

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