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04-09-2018

Product code: Financial management-AW680

 

Assessment for the Interim Assessment of International Financial Management

You are required to prepare a report of 2,500 words to the Finance Director (William

Money) of Quick Nourish plc supermarket chain (QN) for presentation to the

Directors to address concerns raised at the recent Board Meeting.

 

Background

QN is a large supermarket based in the UK. The company operates mainly in Europe and the UK. About 60% of its purchases are paid for in dollars and sales are mainly in Euros and pounds. Profit margins for QN are low at 3%, with an average shelf life or stock turnover of about 7 days for perishable foods and one month for longer life provisions.

 

The Marketing Director (Mr. Selby) commented that as matters stand QN is very exposed to changes in the value of the dollar. He noted that in May 2012 the dollar increased in value by over 5% against both the euro and the pound. He comments that: we sell something for £1 and it costs us 97 pence to buy paying in dollars. Then we find that the dollar costs more and we have to pay 97p x 1.05 = 101.85 pence or about 102 pence. So we sell for 100 pence and pay 102 pence. There then followed a discussion of the problem outlined by Mr. Selby.

 

At the end, William Money promised to circulate additional notes to the Directors in

response to various concerns expressed at the meeting. The concerns were as follows:

 

1) Mr. Brick, the Estates Director, remarked that he thought the IMF was supposed to ensure that the exchange rate did not move greatly. The purchasing Director Mr. Cheap thought that the IMF could not do this in the case of the dollar as its balance of payments on the current account was so

poor. The legal secretary Mrs. Innocent thought that the other Directors were making too much of the problem observing that the price of the dollar did on occasion go up but that it also went down and that on balance there was no effect. The Finance Director promised some notes on the international management of the dollar exchange rate, the recent behaviour of the dollar and

what it meant for QN.

 

2) Discussion turned to foreign supplies not paid for in dollars, but rather in the local currency. Mrs. Innocent, continuing her comments, observed that in cases where there was rampant inflation in the country the pricing problem observed by the Marketing Director was a real problem and we could not start increasing our prices of one product in a range merely because it was from a country with high inflation.

 

3) The Managing Director Mr. Bees turned to Mr. Money and suggested that QN should use “some clever finance” to solve the problems raised. Mr. Money asks you to prepare notes covering the following issues:

a. The value to QN of taking out short term derivatives

b. A comparison between futures and a forward rate

c. Whether options should be considered and a cost comparison with

futures and forward strategies. Mr. Money asks that your presentation does not read like a textbook, but is intelligible to his fellow Directors and is relevant to QN. He tells you to use

“those exchange rates I gave you last month” to illustrate, where needed.

 

ASSESSMENT CRITERIA,

Your answer should not exceed 2,500 words, word-processed (letter size 12, Times

New Roman, 1.5 space); scripts that are excessively long (i.e. exceeding the limit by

more than 10%) will not be read beyond the point of the word limit. The word limit

applies to the main report only, and excludes exhibits, cover page, list of references,

etc.

 

The paper should include a cover page (which should give your student number,

assignment name, date and number of words, but not your name), table of contents,

numbered pages and a list of references. The body text should be fully referenced

(Harvard Referencing System), with clear introduction, discussion and conclusion

sections. Please note that assignment marks will also be based on aspects such as use

of examples, figures, tables, illustrations and statistics that indicate wider/independent

reading.

 

One of the clear academic objectives of a Master’s level programme is to show in the

paper that you have read, understood and “absorbed as your own” the many concepts

associated with Operations Management. That is not the same as providing a

summary of which author said what; good assignments discuss the literature in terms

of themes or concepts. Try to structure your paragraphs so that the first sentence

introduces the theme or concept discussed in the paragraph, and the paragraphs

themselves should be grouped in such a way that your “story” flows in a structured,

balanced and comprehensible way.

Some “do’s” and “don’t” about style:

  •  Do not “copy and paste” from books or other sources. If used, direct quotes should

be few, short and in italics;

  •  Be very sparing of using simply expressions such as “in my opinion”; instead, put

forward your argument as to why one approach may have more advantages than

another. You might compare and contrast what different authors have to say about

a given concept. We are looking for evidence of an analytical approach;

  • Do not use a large number of in-text exhibits copied and pasted from authors.
  •  
  • Turn in your paper on time. Meeting deadlines is critical in business, and late

papers will be penalised. If you are requesting an extension, you must do so before

the due date. Due to unpredictable Internet service, try to upload your paper a few

days before the deadline;

  • Upload your completed midterm as a .doc through the RKC system. Do NOT

email it to your professor or post it to the forum. Submit only one file. Include any

  • Excel analysis or other elements (if relevant) as images, not embedded files.

Presentation style and clarity are important. We do not expect perfect English, but please proofread your work to eliminate confusing passages and major errors. Students often accidentally skip entire sections, which causes them to lose many points. Data should be clearly laid out in tabular format so that your approach and answer are both plainly evident.

Download Questions

The deviation in exchanges rates can result in either adverse loss or prospective profit for a firm. Risk involved due to change of exchange rates is commonly known as exchange risk. The value of currency of a country affects the shares of a company of the respective country. The same thing is applicable for QN also as it made most of its payments in USD whereas it receives its payment in Euro. Hence a small deviation in exchange rate will greatly affect its profitability as its profit margin is very less at just 3%. Hence, this report will analyze the effect of Foreign Exchange risk on the health of the company.

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