Using globalEDGE™, complete the Research Exercises 1 and 2 locate under the sect

Question

Using globalEDGE™, complete the Research Exercises 1 and 2 locate under the section “Research Task” on page 318. Prepare a report with an analysis of your findings. For exercise 1 provide an analysis of the implications that for the United States may have the fact that those specific countries are the top importers and exporters of merchandise. For exercise 2 explain in detail the rationale of your choice. Start the report with an introduction and end the report with a conclusion. This is a 300 level course and you are expected to demonstrate good use of the English language. Spelling and grammar errors are unacceptable. The report must have a cover page, citations and references as appropriate. Follow the APA guidelines. Use the globalEDGE website (globaledge.msu.edu) to complete the following exercises:

Exercise 1 One of your company's essential suppliers is located in Japan. Your company needs to make a 1 million Japanese yen payment in six months. Considering that your company primarily operates in U.S. dollars, you are assigned the task of deciding on a strategy to minimize your transaction exposure. Identify the spot and forward exchange rates between the two currencies. What factors influence your decision to use each? Which one would you choose? How many dollars must you spend to acquire the amount of yen required? Exercise 2 Sometimes, analysts use the price of specific products in different locations to compare currency valuation and purchasing power. For example, the Big Mac Index compares the purchasing-power parity of many countries based on the price of a Big Mac. Locate the latest edition of this index that is accessible. Identify the five countries (and their currencies) with the lowest purchasing-power parity according to this classification. Which currencies, if any, are overvalued?

Explanation / Answer

Exercise 1 :- If I have to decide for my company to make the payment of one million Japanese Yen then in that situation I would opt for forward rate. This is because I have a time limit of 6 months to make the payment and a forward rate is the safest one to minimize transaction cost since whatever be the rate I would be making payment at a rate which is pre determined.

Exercise 2 :- The five countries with the lowest PPP as per the latest source of Big mac index 2016 January are:-

The currency of Switzerland is overvalued by 10 – 50 %

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