Fin 454: International Financial Analysis Term Paper
You are the CEO of a multi-national oil exploration and export firm with headquarters in Russia and majority-owned subsidiaries in Canada, Venezuela, and Saudi Arabia. Each subsidiary is listed on the local stock exchange in the country where they operate and the entire company is listed on the Moscow Stock Exchange. Each subsidiary reports its profits in the local currency; however, all accounts are consolidated annually by the Parent company in Russian Rubles.
The Board of Directors of your firm have asked you to prepare a detailed policy (strategy) statement (approximately 2,500 words) for the annual report to shareholders. Currently, the following events are occurring:
- The Canadian economy has recovered from the COVID-related recession and the subsidiary there would like to expand its R&D capacity but lacks sufficient retained earnings with which to finance the expansion.
- The Russian Central Bank has reduced interest rates to the lowest level in the last three years.
- The Saudi government has just announced a large estimated increase in proven oil reserves in the country.
- The Russian Parent company and Canadian subsidiary each maintain a very high proportion of debt relative to equity.
- The Venezuelan government has just announced a 10-year “tax-holiday” for foreign firms which invest in new projects in the country.
The local equity beta for each of your operating companies is as follows:
Russia: 1.5 Canada: 1.0 Venezuela: 3.2 Saudi Arabia: 2.9
Please prepare a statement for the shareholders that discusses in detail:
- Your forecasts for foreign exchange movements (spot rates) over the next year in the countries where you do business. Use the international parity conditions to create your forecasts; do NOT use other analysts’ forecasts.
- The risk management, operating, investment, and financial decisions you expect to take due to your forecasts in no.1, the events described above, and your research on the countries where you do business.
- How the above events and the actions you take in response are likely to impact the risk exposures, profitability, cost of capital, and stock market value of the company and its subsidiaries over the same period.
Remember to support your forecasts and decisions with theory and evidence from the course material and/or supplementary literature and to properly CITE all references with the author and date of the publication from which the material is drawn (both within the body of the report and in the bibliography).
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