FN7226 International Business Environment Assignment Sample
Here’s the best sample of FN7226 International Business Environment Assignment, written by the expert.
Executive summary
There are two projects having net cash flows of USA and Europe and this report has been going to suggest the best investment decision among those two. As per this, it has been explained that there are various conditions of the exchanged rates fluctuations which has been going effect the economic condition of the countries. This report has been going to suggest the possible NPV and best NPV results which going to affect the investment decision.
Question 1:
1.1 Discussion of reasons behind the reversal
The entire world over the last few years has observed an increasing backlash against globalization. The phrase “globalisation backlash” indicates a downfall in partisan, policy or public support towards globalization. In order to explore backlash varied aspects of globalization need to be observed that including economic, political, cultural and social. Roles of different relevant groups need to be considered like voters, government and political intermediaries. Presently, governments are highly focused on protecting jobs, safeguarding intellectual property from theft and lastly minimize cybercrime risk rather than taking actions towards breaking down barriers. Notably, de-globalization became visible from 1914 to 1945 and again in recent years, initiatives are being taken for managing globalisation effectively (annualreviews.org, 2021). Recognizable reasons for de-globalization are raising inequality, economic torpor and constant failure in building up enhanced political structure.
The most common examples of globalization backlash are selection of famous nationalist leaders such as “Donald Trump in the US and Jai Bolsonaro in Brazil“. Additionally, “Brexit referendum vote” is also a prominent example of an action towards de-globalisation. As opined by James (2018), globalization has increased dependency on member countries and broadened up the gap between rich and poor. Most of the developing countries want to rise in the developed category without the support of member countries. The backlash started with a viewpoint to spread equality among all countrymen and effort became visible from both individual and national levels.
Comparing benefits of globalization with that of demerits within the area of trade it is being seen that specialisation and “trade-to-GDP ratios’ ‘increase significantly. However, downward pressure becomes prominent in real wages and inequality in profit distribution. Improvement of globalisation within a country only makes a wealthier more wealthy and poorer more poor as a result parity in income or wealth distribution becomes wide. Furthermore, cultural diversity becomes a threatened area where local workers are not given importance and impose poor working conditions. Viewing these rising issues many countries prioritize its countrymen and try to create more job opportunities.
Observing the entire world’s functionality, it cannot be said the world is entering into the phase of de-globalization. However, some instances interpret globalization like in China, a high restriction of using internet and barring connectivity with outside world by using “the great firewall” (chathamhouse.org, 2021). Recently, the Germany and US election campaign mainly focuses on climate change and it has become an international issue to improve environmental conditions through reducing pollution from growing industries. “Net Zero” and de-globalization has a link because many countries are not supporting globalisation due to reducing carbon emission as well as greenhouse gases. As stated by Kornprobst and Paul (2021), the significance of net-zero is essential for taking effective steps towards reducing global warming. Maintaining net zero is a prompt action towards de-globalization and many companies around the world are preparing policies to protect environment. These actions also fall within the company’s “corporate social responsibility” and including net-zero strategies help a company to maintain sustainability through ongoing actions.
1.2 Challenges and opportunities
Globalization is the term that has been going to affect the entire growth of the countries. In this aspect is the growth of technological, transportation, cultural and financial. These major changes to the entire country have some merits and demerits which are going to improve the quality of life. As per the view of Giglio et al. (2021), globalization has been segregated based on political, economic, environmental, and technological arguments. The current implications have been discussed focusing on the global developments of countries.
Opportunities
In the political aspect, there are major changes in the political condition of the country; these major changes have affected the organizational culture of the company. There have been changes in the GDP rates, tax rates, and inflation rates. Due to these major changes, companies can have the opportunity to earn more profits. In the economical aspect, due to the change in the economic condition of the country, there are major changes have been found in the unemployment rates (Schneider et al. 2017). The decreased unemployment rate has been denoted that the company’s job creation capability has been increased and due to this, there are an increased number of income rates. In the environmental aspect, there is having some opportunities after using sustainable products due to reducing pollution. This results in increased growth of consumers as consumers can be attracted to these products to enjoy the new type of the product. On the other hand, technological growth has provided companies with increased productivity. Increases productivity has provided the increased level of revenue generation scope.
Challenges
There are major challenges faced by the companies for having the new structure of the organization. As per the view of Keloharjuet al. (2021), the workers and managers have been facing various problems to work with the new structure. On the other hand, creating public relations with other countries might have affected business work negatively and affected net-zero emissions. This creation might not provide profitability to the companies. However, implementation of the new technology has not been going to affect the current position of the company and due to this, the company might face financial loss at the end of the financial year. On the other hand, due to political changes, there has been a major change in the tax rates and exchanges rates. These rate fluctuations might have affected the organizational work negatively. There has been lost due to having increased exchange rate in the international market and net-zero emissions (Shakespeare, 2020). Similarly, due to this fluctuation, some companies could not try to expand their business in the global market. Due to these major challenges, there is a decreased rate of economic growth in the country. Hence, globalization might not always positively affect the countries. Furthermore, three have been major negative aspects that have been found due to the effect of globalization.
Question 2:
2.1 Viability analysis of projects
Viability of USA in a global context
The USA has the opportunity of increasing the rate of education, healthcare, career opportunity, weather opportunity, and business expansion scope. As per the economic condition of the USA, it has been very strong and flexible. In the USA the market position has increased and there is a huge working scope for the new employees. As per the view of Rennert et al. (2021), on the other hand, the USA is one of the developing countries using dollars and there is an increased liquidity position of the country. The number of currency growth also has been increased in the USA, due to this there is an increased scope of foreign market business expansion. As the marketing condition is high in the USA, there has been an increased rate of technological implementation within the companies in the USA (Marchioni and Magni, 2018). Most of the renowned companies have been using the developed technology to resolve the mating and supply chain and increase the productivity of the company.
-
Discount rate allocation
As per the public investment rate and regulatory market position discount rates or the USA, the project has been considered 10%. Discount rates have been decided based on the last year’s value, average long-term market conditions, and based on the average growth rate of the country. The 10% discount rate has been taken because there is a 0.25% increased marketable value, and the current portion is in a better condition.
Viability of Europe in the global context
The viability of the European market has recently increased due to the huge benefits of expanding the business in the technological and finance market across the globe. There have been expanding market scopes and an increased rate of globalization. This positive effect of globalization has been going to improve the market position of the country. As per the view of Githiria and Musingwini (2018), European cities have the benefits of using modern transportation services and communication processes. Through this, it has been seen that European companies have been trading more of the technology and these companies are expanding their business in the international market. Hence, the current situation of the viability of European countries is in a better position. In the European Union, there is a free movement of goods, services, labour, and capital. In this regard, it has been explained that the current political and economic condition of the country is in a better position.
-
Discount rate allocation
It has been examined that there is a high cost of capital rate for European countries. In this regard, the discount rates have been decided to be 17%. This situation has occurred due to increased Federal Reserve banks charges and increasing market rates in international business (Ulfa et al. 2018). These high discount rates have affected the entire marketable condition of the European country and have affected the projects within the country.
2.2 Requirement of the investment
Investment and NPV for USA project
As per the analysis of the market condition of the USA project, it has been decided to invest 20 million as the initial amount of the investment. The total cash inflow must be 25 million, as per this there are 5 million positive values of the total cash flows. In this regard, there are 10% discount rates, though this total discounted cash flow must be 4.79. As per taking into consideration the discount rate of the project, it has been found that there are negative values of NPV. The value of the NPV is -2.05 million which is going to affect the growth of organization.
Investment and NPV for the European project
As per the analysis of the market condition of the European project, it has been decided to invest 20 million as the initial amount of the investment. The total cash inflow must be 25 million euros, as per this there are 5 million positive values of the total cash flows. In this regard, there are 17% discount rates, though this total discounted cash flow must be 4.20 million euros. As per taking into consideration the discount rate of the project, it has been found that there are negative values of NPV. The value of the NPV is -5.68 million Euros which makes it a very bad investment option.
2.3 Calculation of the discussion
The calculation of the discounting rate is measured with the help of taking the percentage values and years of the projects. In the below table 1, consists the calculation of the discounting rate starting from the year 0 to 5. In the year 0 the rates are calculated 1/(1+0.10)^0 and the same process applied with the remaining five years. The discounting values are reducing with the effect of increasing the number of the years. In order to use that formula, the value of the all 5 years discounting rate is measured.
Similarly, the value of NPV calculated with the help of taking the cash flow values and multiplying with the discounting factors. In the initial year, the value of cash flow is -20 million, hence, the NPV value is calculated using this formula, (-20 * 1.00) = (20.00) million, after that in year 1, the value of cash flow is 2 million and discounting rate 0.91. The value of NPV is (2.00*0.91) = 1.82 million. The total value of the NPV is calculated by using that formula of [-20-(1.82+3.31+3.76+4.10+4.97)] = -2.05 million. The rest calculation of table 3 and 4 are calculated by using these same formulas of discounting rates and NPV.
| Discount Rates | |
| Year | 10% |
| 0 | 1.00 |
| 1 | 0.91 |
| 2 | 0.83 |
| 3 | 0.75 |
| 4 | 0.68 |
| 5 | 0.62 |
Table 1: Discount rates Project 1 (USA)
(Source: Created by Lerner)
| Cash flows (£) (000) | Cash Flows (million) | DCF @10% | PV (@10%) |
| Year 0 | (20.00) | 1.00 | (20.00) |
| Year 1 | 2.00 | 0.91 | 1.82 |
| Year 2 | 4.00 | 0.83 | 3.31 |
| Year 3 | 5.00 | 0.75 | 3.76 |
| Year 4 | 6.00 | 0.68 | 4.10 |
| Year 5 | 8.00 | 0.62 | 4.97 |
| Total cash flow | 5.00 | 4.79 | |
| NPV = | (2.05) | ||
Table 2: NPV Calculation Project 1 (USA)
(Source: Created by Lerner)
| Discount rates | |
| Year | 17% |
| 0 | 1 |
| 1 | 0.854700855 |
| 2 | 0.730513551 |
| 3 | 0.624370556 |
| 4 | 0.533650048 |
| 5 | 0.456111152 |
Table 3: Discount rates Project 2 (Europe)
(Source: Created by Lerner)
| Cash flows (£) (000) | Cash Flows (million) | DCF @17% | PV (@17%) |
| Year 0 | (20.00) | 1.00 | (20.00) |
| Year 1 | 2.00 | 0.85 | 1.71 |
| Year 2 | 3.00 | 0.73 | 2.19 |
| Year 3 | 4.00 | 0.62 | 2.50 |
| Year 4 | 8.00 | 0.53 | 4.27 |
| Year 5 | 8.00 | 0.46 | 3.65 |
| Total cash flow | 5.00 | 4.20 | |
| NPV = | (5.68) | ||
Table 4: NPV Calculations Project 2 (Europe)
(Source: Created by Lerner)
Advise:
It has been suggested that the USA project must be selected due to its lower rate of discounts compared to the European project. Based on the calculation of NPV, it has been found that this investment option has low risk as compared to the European project.
2.4 Analysis of the anticipated change in exchange rates
Project 1 (USA):
In the majority, dollars is one of the best currencies which have been used most within the international money market. In the US currency market, there has been a versatile condition of the exchange rates fluctuation. As per the view of Šimáková (2017), the fluctuation rate in the supply and demand of the foreign and home currencies in the exchange market is often different. In the exchange rate market, increasing demand for foreign currency has been denoted that there has been a shortage of foreign currency, which this going to affect the increasing price of the products. On the other hand, increasing deemed of the foreign currency has been denoted that there is decreasing demand for the home currency. This condition has been focused on the country’s increasing exports and decreasing imports. Additionally, there has been a lower rate of unemployment rates and high inflation rates. Similarly, increased demand for the home currency and decreased demand for the foreign currency have been denoted that there are decreasing exports and increasing imports (Monfared and Akın, 2017). This situation has created higher interest rates and increased the rate of foreign investments.
In the currency market research, it has been found that dollars have been higher than the euro such as it has been near about 1.23 US dollars. Similarly, the euro rate has fluctuated near about 1.3 in US dollars. It has been found that there is a 40% increased rate of GDP compared to the European currency. Moreover, it has been expected by the global banks that there will be an increased rate of supply of US dollars in the near future. This situation has been occurred due to the current market position of the country.
Project 2 (Europe):
Exchange rate fluctuation has affected the country, it has been found that in 2019 there has been euro currency depreciation and in 2021 there is a 4.80% appreciation rate of the euro currency. This exchange rate appreciation has occurred due to the depreciation of the Japanese yen within the whole period of 2020- 2021. In the current currency market examination, most of the currency banks have explained that the Euro has been less strong than the dollar. This major change has occurred due to having a political and economic impact on the European country (Koijen and Yogo, 2020). There are various reasons which have affected the euro currency to depreciation. As the high inflation rates and no flexible monetary policy have been affected the most and this leads to currency depreciation.
As per the forecasting of the European Economic Commission, it has been forecasted that there will be a decreased inflation rate in the upcoming years. This has been explained that there are chances of increasing demand for the euro in near future.As per the forecasting report, it has been found that the future of FX euro is valuable in the future and options market. Marketers can use more euros in trading the futures contract and options contract. There is an increased rate of the reserve for the euro in the near future as it is expected that there will be an increased rate of currency circulation across the world.
2.4.1 Proposal to mitigate impact of possible exchange rates fluctuation
Currency fluctuation has occurred due to changes in several factors such as economic growth, political changes, and many more. These major changes have affected the inflation rates, capital flows, and unemployment rates. It has been found that due to this anticipated exchange rate fluctuation there are some positive and negative impacts on the business, customers, and the entire economy.
Economy
As per the economical effects, it has been found that there is a major change in the export and import of the country. In international trade, the weak currency has increased exports to recover the condition and decreased imports. On the other hand, if the opposite situation has occurred, in that case, a strong currency holder country has wanted to increase the import and decrease the export (Dogruet al. 2019). This inflow and outflow of the currency have created the fluctuation of the economical market. The positive impact is there are an increased number of inflows within the country due to having the exports. This has increased the reserve of the currency. This situation has been suggested that by the strong economic situation of the country. However, this has increased the economic market competitiveness. On the other hand, due to the fluctuation of the exchange rate, there are side effects that have been faced by the entire country. Apart from that, if there has been increased outflow to this situation that can cause huge issues and company have to suffer the most. This situation has been denoted that there are not enough currency reserves and the country’s marketing situation is critical. Hence the country has decided to increase the currency reserve by increasing the number of exports.
Customers
In order to currency fluctuation, people who are most connected with the exports and imports business has been affected. In the market research, if it has been followed that there is an increased rate of home currency and decreased foreign currency, consumers increase their purchase and hold the selling. Similarly, if the situation has occurred that tighter is an increased rate of home currency and decreased rate of foreign currency, consumers are increasing their selling and hold the purchases (Duman, 2017). Apart from this, exchange rates have fluctuated in several manners, hence, due to this; it has been found that some consumer has been a faced loss for the certain change of the exchange rates in terms of selling or purchasing.
Business
The exchange rate fluctuation has directly affected the business’s bottom line. The increased profitability has been dependent on the export and imports of that company. In the international market, if there has been an increased rate of portability due to exports, there are more scopes to expand the business in the other foreign country. On the other hand, there are some negative aspects which have occurred due to the weak home currency rates and fewer exports of the company. This has affected the profitability, revenue, and other financial activities of the business. Additionally, there has beensuggested that less scope for expanding the business in the international trading market.
Reference List:
Dogru, T., Isik, C. and Sirakaya-Turk, E., 2019. The balance of trade and exchange rates: Theory and contemporary evidence from tourism. Tourism Management, 74, pp.12-23.
Duman, F., 2017. Working capital management and the impact of fluctuating exchange rates (Master’s thesis, ÇankayaÜniversitesi).
Giglio, S., Maggiori, M., Rao, K., Stroebel, J. and Weber, A., 2021. Climate change and long-run discount rates: Evidence from real estate. The Review of Financial Studies, 34(8), pp.3527-3571.
Githiria, J. and Musingwini, C., 2018. Comparison of cut-off grade models in mine planning for improved value creation based on NPV. In Proceedings of the 6th Regional Conference of the Society of Mining Professors (SOMP) (pp. 347-362).
James, H., 2018. De-globalization: The rise of disembedded unilateralism. Annual Review of Financial Economics, 10, pp.219-237.
Keloharju, M., Linnainmaa, J.T. and Nyberg, P., 2021. Long-term discount rates do not vary across firms. Journal of Financial Economics.
Koijen, R.S. and Yogo, M., 2020. Exchange rates and asset prices in a global demand system (No. w27342). National Bureau of Economic Research.
Kornprobst, M. and Paul, T.V., 2021. Globalization, de-globalization and the liberal international order. International Affairs, 97(5), pp.1305-1316.
Marchioni, A. and Magni, C.A., 2018. Investment decisions and sensitivity analysis: NPV-consistency of rates of return. European Journal of Operational Research, 268(1), pp.361-372.
Monfared, S.S. and Akın, F., 2017. The relationship between exchage rates and inflation: The case of iran. European Journal of Sustainable Development, 6(4), pp.329-329.
Rennert, K., Prest, B.C., Pizer, W.A., Newell, R.G., Anthoff, D., Kingdon, C., Rennels, L., Cooke, R., Raftery, A.E., Ševčíková, H. and Errickson, F., 2021. The Social Cost of Carbon: Advances in Long-Term Probabilistic Projections of Population, GDP, Emissions, and Discount Rates. Brookings Papers on Economic Activity.
Schneider, T., Michelon, G. and Maier, M., 2017. Environmental liabilities and diversity in practice under international financial reporting standards. Accounting, Auditing & Accountability Journal.
Shakespeare, C., 2020. Reporting matters: the real effects of financial reporting on investing and financing decisions. Accounting and Business Research, 50(5), pp.425-442.
Šimáková, J., 2017. The impact of exchange rate movements on firm value in visegrad countries. ActaUniversitatisAgriculturae et SilviculturaeMendelianaeBrunensis, 65(6), pp.2105-2111.
Ulfa, H., Yulhendra, D. and Ansosry, A., 2018. AnalisisInvestasiPengadaanAlatBerat Di PT. AnugrahHalabanSepakatDenganMetode NPV dan IRR. Bina Tambang, 3(3), pp.1004-1013.
Websites
annualreviews.org The Backlash Against Globalization Available at:
https://www.annualreviews.org/doi/full/10.1146/annurev-polisci-041719-102405 [Accessed on 18th December 2021]
chathamhouse.org (2021) What is de-globalization?
Available at: https://www.chathamhouse.org/2021/10/what-de-globalization [Accessed on 18th December 2021]
________________________________________________________________________________
Know more about UniqueSubmission’s other writing services:
