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Laura Reese Module 4 Assignment Global Dimensions in Business Sept. 9th 2021

For this assignment, we will be creating a business memo that explains the profitability, viability, and importance of considering foreign exchange using three different scenarios: 1) The company uses the spot rate on April 1st to convert its sales revenue in MYR to U.S. dollars. 2) On January 1st, the company uses that day’s forward rate today to lock in a foreign exchange rate for its expected 1.25 million MYR in sales. This means the company agreed to exchange 1.25 million MYR using the forward rate on January 1st when April 1 arrives. 3) Another option for the company is to spend the foreign currency and avoid any currency exchange. Because it is a manufacturing company, raw materials are always needed. For each of these scenarios, we will be using the following contractual obligation: The company must sell 4,000 units for exactly 1.25 million MYR for the first quarter, making minimum $90 USD per unit. The two exchange rates in which we will be using are: 1) On January 1, the daily spot rate is 3.13 MYR, and the forward rate is 0.317 U.S. dollars/MYR for April 1st of the same year. 2) On April 1, the daily spot rate is 3.52 MYR.

Looking at the first scenario, the current exchange rate is $1 USD is equal to 3.52 MYR which gives the company $89 USD per unit which is just under the $90 USD breakeven point. Therefore, costing the company $4,000, rather than receiving any kind of profit. With the second scenario, with the exchange rate being $1 USD equaling 3.13 MYR, the company would receive $99 USD per unit, giving them a $9 profit per unit, totaling $36,000 USD in profit. Lastly, with the third scenario, the company also has the option to spend the 1.25 million MYR in raw

materials, which would likely end up being more beneficial than scenario 1. Though, less beneficial than scenario 2, this being due to the fact that the raw materials would need to be shipped from Malaysia to the United States, which would likely cost more money than just purchasing the raw material locally. Therefore, after researching each scenario, its positives and its negatives, the scenario I see best fit for the company would be number two, due to the profit and little risk involved. The scenario I find least fit would be number one, due to the lack of profit and total risk and as for the third scenario, I find it to be a good alternative to the second, it just has a bit more risk involved due to not knowing the price of raw materials in Malaysia and skipping costs.

Work Cited Dunung, S. P. (n.d.). Global Business Management: Vol. 1.0. FlatWorld....