Assignment 1: LASA 2—Risk Management Applications
While there are many factors that lead to an organization’s success or failure, it is important to identify the risk associated with the endeavor—financial or nonfinancial. Once the risks have been identified, management has a responsibility to develop measures to mitigate those risks.
Use the publicly-traded company you chose in Module 1 and imagine it has made a strategic decision to start doing business in China. Using the discussion, Currency Exchange Rates: A Case in China with Country Risk, (Chapter 7, Global Finance, page 192 of your textbook) as a model for the report you will write, prepare a report in which you:
- Develop a brief country risk assessment.
- Determine the political, economic, social, and capital risks associated with doing business in China. What are the most important factors to consider? Why?
- After years of keeping the Yuan pegged to the US dollar, in 2015 the Chinese allowed it to float freely in international currency exchange rate markets. You may read more about the Yuan reforms here. Many economists believe that keeping the Yuan pegged to the US dollar has caused it to be undervalued by 30 to 50 percent. Discuss what impact a revaluation of the Yuan might have on US multinationals doing business there, on China’s exports, and on Chinese citizens’ standard of living. What impact would a revaluation have on Chinese inflation and on purchasing power parity? Explain.
Your paper should be about 2,000 words.