INT 220 Module Four Assignment Guidelines and Rubric Overvie ✓ Solved

INT 220 Module Four Assignment Guidelines and Rubric Overview Foreign exchange impacts the profitability of transactions in international markets. It can turn a profitable business into one that loses money and can turn an unprofitable business into one that makes money. In this assignment, you will analyze the impact of foreign exchange on different business scenarios and present your findings in a short business memo. Scenario You manage the international business for a manufacturing company. You are responsible for the overall profitability of your business unit.

Your company ships your products to Malaysia. The retail stores that buy your products there pay you in their local currency, the Malaysian ringgit (MYR). All sales for the first quarter are paid on April 1 and use the exchange rate at the close of business on April 1 or the first business day after April 1 if it falls on a Saturday or Sunday. The company has sales contracts with different vendors that determine the number of units sold well in advance. The company is contractually obligated to sell 5,000 units for exactly 1.50 million MYR for the first quarter.

The break-even point for each unit is $75 in U.S. dollars. Use the following foreign exchange rates: On January 1, the daily spot rate is 3.13 MYR, and the forward rate is 0.317 U.S. dollars per MYR for April 1 of the same year. On April 1, the daily spot rate is 3.52 MYR. Directions Using the information above, create a short business memo that explains the profitability, viability, and importance of considering foreign exchange on the basis of the scenarios below. Scenario 1 : The company uses the spot rate on April 1 to convert its sales revenue in MYR to U.S. dollars.

Scenario 2 : On January 1, the company uses that day’s forward rate today to lock in a foreign exchange rate for its expected 1.5 million MYR in sales. This means the company agreed to exchange 1.5 million MYR using the forward rate on January 1 when April 1 arrives. Scenario 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. Specifically, you must address the following rubric criteria: Foreign Exchange Calculations : Determine the profitability of the international business by using foreign exchange calculations for the first and second scenarios.

Spend or Save : Analyze the viability of spending foreign currency to purchase raw materials as a strategy to mitigate foreign exchange risk, considering the factors that determine its feasibility and effectiveness for the company. Conclusion : After determining the result for each scenario, make conclusions about the importance to a company’s financial results of foreign exchange risk. What to Submit Submit this assignment as a 250- to 300-word Microsoft Word document with double spacing, one-inch margins, and 12-point Times New Roman font. Sources should be cited according to APA style. Module Four Assignment Rubric CriteriaExceeds Expectations (100%)Meets Expectations (85%)Partially Meets Expectations (55%)Does Not Meet Expectations (0%)Value Foreign Exchange Calculations Exceeds expectations in an exceptionally clear, insightful, sophisticated, or creative mannerDetermines the profitability of the international business by using foreign exchange calculationsShows progress toward meeting expectations, but with errors or omissions; areas for improvement may include performing foreign exchange calculations correctlyDoes not attempt criterion40 Spend or Save Exceeds expectations in an exceptionally clear, insightful, sophisticated, or creative mannerAnalyzes the viability of spending the foreign currency instead of exchanging itShows progress toward meeting expectations, but with errors or omissions; areas for improvement may include identifying more elements that can complicate the process of getting raw materials to the company’s factoriesDoes not attempt criterion20 Conclusion Exceeds expectations in an exceptionally clear, insightful, sophisticated, or creative mannerMakes conclusions about the importance to a company’s financial results of foreign exchange riskShows progress toward meeting expectations, but with errors or omissions; areas for improvement may include making conclusions that align with foreign exchange calculations and using the break-even point in analysisDoes not attempt criterion20 Clear Communication Exceeds expectations with an intentional use of language that promotes a thorough understandingConsistently and effectively communicates in an organized way to a specific audienceShows progress toward meeting expectations, but communication is inconsistent or ineffective in a way that negatively impacts understandingShows no evidence of consistent, effective, or organized communication10 Citations and Attributions Uses citations for ideas requiring attribution, with few or no minor errorsUses citations for ideas requiring attribution, with consistent minor errorsUses citations for ideas requiring attribution, with major errorsDoes not use citations for ideas requiring attribution10 Total: 100%

Paper for above instructions

Foreign exchange (FX) risk is one of the most significant financial considerations for firms operating in global markets. As currency values fluctuate, the profitability of international transactions can drastically change, affecting everything from revenue outcomes to long‑term strategic planning. The present analysis evaluates three scenarios involving the conversion, use, or allocation of 1.5 million Malaysian ringgit (MYR) in sales revenue generated by a U.S. manufacturing company that sells goods in Malaysia. Each scenario illustrates the importance of effective foreign exchange risk management and how FX decisions directly influence profitability, viability, and operational resilience. The memo-style analysis offered here expands on the core concepts of exchange rate mechanics and applies them to realistic business decision‑making.

The first scenario involves using the spot rate on April 1 to convert the firm’s 1.5 million MYR into U.S. dollars. On April 1, the spot rate is 3.52 MYR per USD. To determine profitability, the revenue in USD must be calculated by dividing the total MYR revenue by the spot exchange rate. The calculation is as follows: 1,500,000 MYR / 3.52 = approximately 426,136 USD. The break‑even cost of each unit is 75 USD, and with 5,000 units sold, the total break‑even point equals 375,000 USD. To determine profit, revenue is subtracted from break‑even cost. This yields 426,136 – 375,000 = 51,136 USD in profit. Scenario 1 therefore results in positive profitability, meaning the firm benefits from a favorable movement in the exchange rate between January and April. Because the MYR depreciated against the USD (requiring more MYR per USD), the U.S. company earned more dollars when converting the payment. This illustrates how beneficial currency depreciation can be for an exporting firm receiving payments in a foreign currency.

The second scenario involves locking in a forward rate on January 1 for settlement on April 1. The forward rate on January 1 is 0.317 USD per 1 MYR. Under this arrangement, the firm agrees on January 1 to exchange the future 1.5 million MYR at a predetermined rate. Calculating the total revenue in USD uses multiplication rather than division: 1,500,000 × 0.317 = 475,500 USD. This forward contract locks in a revenue higher than the spot conversion amount in Scenario 1. Subtracting the break‑even cost of 375,000 USD gives a profit of 100,500 USD. This scenario yields the highest profit among the three, demonstrating that forward contracts provide predictability and can protect firms from adverse currency movements. Although the MYR eventually depreciated even further, resulting in a favorable spot exchange rate in Scenario 1, the forward contract locked in an even stronger advantage. Forward contracts thus reduce uncertainty, support accurate budgeting, and prevent volatility from damaging the firm’s earnings.

Scenario 3 involves spending the foreign currency directly rather than converting it. This method avoids exchange rate exposure altogether by using the MYR to purchase necessary raw materials for production. The viability of this option depends on logistical, operational, and economic factors. If the company can reliably purchase raw materials from Malaysia or other MYR‑based suppliers, this strategy could eliminate currency conversion risk entirely. As the literature suggests, natural hedging—where firms match cash inflows and outflows within the same currency—can be a powerful method of minimizing FX exposure while enhancing operational efficiency (Moffett et al., 2021). However, feasibility depends on whether raw materials are available at competitive prices, whether suppliers accept MYR, and whether Malaysian materials meet the firm's production requirements. Additionally, importing raw materials may involve tariffs, shipping costs, storage fees, or delays that could offset the benefits of avoiding FX volatility. Thus, although spending foreign currency can be an effective hedge, it must be evaluated against operational realities.

Analyzing these scenarios highlights the strategic value of understanding foreign exchange risk. Scenario 1 demonstrates how exchange rate fluctuations can unexpectedly increase or reduce profits. Scenario 2 shows the power of financial hedging tools—such as forward contracts—to stabilize expected revenues and protect against negative movements. Scenario 3 introduces operational hedging as a flexible alternative that allows a firm to avoid conversion risk entirely. Together, these scenarios illustrate the necessity for firms to incorporate FX analysis in financial planning. Companies must evaluate market trends, volatility patterns, and hedging mechanisms to make informed decisions that maintain profitability and long‑term financial health.

Ultimately, the effectiveness of FX strategies depends on a company’s risk tolerance, financial forecasting capability, and operational needs. Forward contracts provide predictable and secure financial outcomes, making them an excellent option for companies prioritizing stability. Spot conversions may benefit firms during favorable market movements but expose them to downside risk during periods of volatility. Operational hedging through foreign‑currency spending aligns with long‑term strategic procurement but may complicate supply chain management. Foreign exchange risk is therefore a foundational element of international financial decision‑making and cannot be overlooked if companies seek to maintain competitiveness in global markets.

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