FIN 475 Fall 2021 Writing Assignment: Harvard Business School Case: \u201cSwatch Group and Francogeddon\u201d<\/p>\n
Due by Sunday December 5<\/p>\n
Late Policy: 2 points per day through December 10; 25% deduction per day through December 14<\/p>\n
The purpose of this writing assignment is to demonstrate comprehensive understanding of the course material and apply it to a real -world analysis. <\/p>\n
Important: you need to access the case through this link- https:\/\/hbsp.harvard.edu\/import\/854483<\/p>\n
General instructions: <\/p>\n
Please write your reports in MS Word with font size 11 or 12 and submit on Canvas. Use your preference for double or single spacing. <\/p>\n
Address the prompts in order from 1A through 5B. You may follow your own preference for using section headings and\/or transitions between the sections; but remember this is to be formatted as a formal paper or report, not a set of homework questions. Do NOT include these written instructions in your work. <\/p>\n
Please cite your sources properly with in-text citations when appropriate and a works cited page. NOTE what reference style you are using (MLA, etc.) under your works cited heading. <\/p>\n
Professionalism, spelling, grammar, style, and following formatting instructions will all affect your grade. <\/p>\n
Late assignments will lose 10 points per day they are late, starting at midnight. <\/p>\n
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1. Background<\/p>\n
Materials, in addition to the case:<\/p>\n
Chapters 1-3 of the textbook<\/p>\n
https:\/\/www.swatchgroup.com\/en<\/p>\n
A. Swatch Group<\/p>\n
Give the background of the case in terms of introducing the company Swatch Group. Investigate Swatch Group\u2019s background from their home page at www.swatchgroup.com\/en and explain (using evidence) why it fits the textbook example of a multinational corporation. (1-2 paragraphs)<\/p>\n
Briefly give an overview of the foreign exchange risk Swatch Group according to the case. Use the Harvard Business School link at the top of the assignment (or in the syllabus) to access the case. Be sure to note how Swatch would be affected by changes in the value of the Swiss franc. (1 paragraph only. Part III will cover the types of foreign exchange exposure and their details).<\/p>\n
As a multinational corporation what other risks does Swatch face? (1 paragraph)<\/p>\n
B. The economic situation in Switzerland<\/p>\n
Describe the currency regime prior to 2011, according to the case and Chapter 1 in the textbook. (1 paragraph)<\/p>\n
What were the macroeconomic factors affecting the franc\u2019s value in 2011? Use information from the case and the textbook. Describe the impact of these factors on the demand, supply, and exchange rate for the franc. (1-2 paragraphs).<\/p>\n
According to the case, what was the currency regime in place in in Switzerland from 2011-2015? Explain. (1 paragraph)<\/p>\n
According to the case, what was the balance of payments situation in Switzerland in (a) 2011, (b) 2015, and (c) post 2015? (1 -2 paragraphs)<\/p>\n
2. Exchange rates and Inflation: 2000 \u2013 2017<\/p>\n
Materials, in addition to the case: <\/p>\n
Chapter 6 of the textbook AND Case, Fair, Oster Chapter 35<\/p>\n
Data in the appendix on Canvas\u2014available after Chapter 6 material is completed<\/p>\n
A. Nominal and Real Exchange Rates<\/p>\n
Exhibit 2 of the case shows the exchange rate in terms of how many USD exchange for 1 Swiss franc (CHF) exchange for 1 USD from 1999-2017. Exhibit 1 of the case shows Switzerland\u2019s inflation rate from 1993-2017. This information (for 2000-2017), together with the US inflation rate is provided in table form in Appendix 1 on Canvas.<\/p>\n
According to the parity conditions covered in class, we can use the inflation in the two countries to adjust the nominal exchange rate to a real exchange rate. Create a table that contains the following information: <\/p>\n
(1) Year<\/p>\n
(2) the nominal exchange rate stated in dollars per franc<\/p>\n
(3) Inflation rate in the US <\/p>\n
(4) Inflation in Switzerland<\/p>\n
(5) the real exchange rate stated in dollars per franc.<\/p>\n
Include your table in the report, formatted for MS Word in a professional looking way, including a title. (If you copy and paste from Excel without formatting, you will lose points). <\/p>\n
B. Purchasing Power Parity<\/p>\n
Explain conceptually the difference between the real and nominal exchange rates (beyond telling what the calculation is). If purchasing power parity held exactly, what would the real exchange rate (in dollars per franc) be over this period? Explain. <\/p>\n
Using 2008 as your base year for the exchange rate, describe the changes in inflation, the nominal exchange rate, and the real exchange rate. Does it appear as if purchasing power parity influences the exchange rate over this time period? Explain. (1 paragraph). <\/p>\n
Which exchange rate (real or nominal) should Swatch Group be more concerned with? Explain why. (1 paragraph). <\/p>\n
Why doesn\u2019t purchasing power parity hold? Apply the general concepts learned on this topic to the value of the Swiss franc during the time period of the case. <\/p>\n
3. Foreign exchange exposure<\/p>\n
Materials: Chapters 8-10 of the text<\/p>\n
A. Describe the conversion effect and competitive effect of the franc\u2019s appreciation on Swiss firms such as Swatch. Be sure to distinguish between importers and exporters in both cases. (2 paragraphs)<\/p>\n
B. Describe Swatch\u2019s (probable) transaction exposure to the euro and the other currencies that affect Swatch Group\u2019s revenues and costs (See Exhibit 6 of the case). Reference Swatch Group\u2019s website to determine whether Swatch faces translation exposure. Explain. (1 paragraph)<\/p>\n
C. In light of Swatch\u2019s operations covered in the first part of the assignment, describe its operations exposure to the other currencies. Be specific about the currencies and the exposure. (1-2 paragraphs)<\/p>\n
4. Hedging foreign exchange exposure<\/p>\n
Materials: <\/p>\n
Chapters 7 \u2013 9 of the text<\/p>\n
Wall Street Journal or other reference<\/p>\n
https:\/\/www.swatchgroup.com\/en<\/p>\n
A. What are some methods Swatch Group could use to hedge its transaction exposure to the foreign currencies? Be specific about the currencies. Would you recommend any of these? If so, tell which one and state your reasoning. (1 paragraph)<\/p>\n
B. Describe the current state of affairs in the industry and at Swatch Group today. Consult the Wall Street Journal or another source, and Swatch Group\u2019s website (1-3 paragraphs)<\/p>\n
C. What hedging strategy (if any) should Swatch Group adopt with respect to its operations exposure to foreign currencies? Remember that operations exposure is different from Transaction Exposure. Explain your recommendations about managing operating exposure in terms of its profitability, its obligation to shareholders, and the rest of its operations. As a multinational corporation, with having experienced the events described in the case, what should Swatch Group\u2019s operational goals be? <\/p>\n
5. Investing in Swatch<\/p>\n
Materials: Chapter 13 of the text<\/p>\n
A. Suppose you wanted to invest in shares of Swatch Group. Search the internet to determine your alternatives to do this and explain in terms of Chapter 13 concepts. (1 paragraph)<\/p>\n
B. Considering all your research and analysis in this assignment, would you invest in shares of Swatch? What would you consider about its operations (not just in Switzerland) before you made this decision? (1 \u2013 2 paragraphs)<\/p>\n","protected":false},"excerpt":{"rendered":"
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