Pick a multinational company of interest to you which has international business around the world and which is listed on a stock exchange and publishes an annual report for its investors.Look up its most recent annual report and answer the questions below. 

a.For this company, discuss whether the company faces economic, transaction, and translation exposure. To which markets (countries) is your company most exposed to foreign exchange risk?

b.Consider one of the foreign countries to which your company is exposed to foreign exchange risk, and obtain annual inflation rates for this foreign country and for the home country of the multinational company over 2020 as a whole (e.g. can look up use www.tradingeconomics.com estimates of annual inflation for each country).Also obtain the spot exchange rate between your company's home country, and the foreign country at the beginning of 2020 and at the end of 2020 (e.g. can look at https://finance.yahoo.com/currencies ).For example, if you company is a Chinese-owned company, and the foreign market in which the country operates is Japan, then you will need the CNYJPY=X currency quote).

Then, using the formula below for the real exchange rate (equation 6.15 in Chap. 6 of your Eun, Resnick, and Chuluun text) calculate:

q = (1+ )/[(1+e)(1+p*)]

where p= home country inflation rate (in decimal terms )

p* = foreign country's inflation rate (in decimal terms)

e = [Spot(#domestic/FX)_t+1 - Spot(#domestic/FX)_t ]/ Spot(#domestic/FX)_t

For the exchange rate and inflation rates you found, what was the value of q in 2020? Did the company's home currency appreciate or depreciate in real terms over 2020, and how did this change likely affect the competitiveness of your firm's exports?

Answer rating: 100% (QA)

Analyzing Foreign Exchange Exposure A Case Study Chosen Company Nestl Switzerlandbased multinational company Source httpswwwnestlecominvestorsannualre... View the full answer