FIN406 Assignment 2 - Assume a Saudi Multinational Corporation

FIN406 SEU Saudi Multinational Corporation Business Question

College of Administrative and Financial Sciences Assignment-2

FIN406

The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). • Submissions without this cover page will NOT be accepted. Questions

Question 1: Assume a Saudi Multinational Corporation decided to do a project in Germany one year ago (October 1st, 2021) which would be completed on September 30th, 2022. If the project cost 100 million Euro and expected to generate income of 150 million Euro on September 30th, 2022. The exchange rate at the beginning of the project is 0.23 Euro/SAR and it is 0.27 Euro/SAR at the end of the project. There is no derivative bearing SAR currency, but there is a way a Saudi firm engage into the forward / option market.

a- Calculate the initial investment in SAR.

b- show the choices for financing this project by the Saudi firm? Just show without calculation.

c- Calculate profit from this investment in Euro and SAR, also show whether the Saudi firm hurt or benefit from changes in the exchange rate movement.

d- How would the Saudi firm hedge against the exchange rate risk?

Question 2: The US is considered a country that borrow at lower cost of capital than the rest of the world; briefly explain the reason behind this fact.

Question 3: According to Vision 2030, Saudi Arabia planned to diversify its production and one of the divisions of production is Small & Medium Enterprises (SME). The goal by 2030 to make 35 percent of GDP from SME. Briefly explain whether Saudi Arabia will be able to achieve this goal within this time frame and how would the Saudi private equity market attract foreign SME. You might do a little research about this.

Question 4: Saudi Arabia has recently increased its degree of openness; hence it engaged in higher levels of international (financial & non-financial) activities. Briefly discuss the following along with providing one example:

a- How would this affect our economy?

b- How would this affect our BoP? Current account & financial account.

c- How would this affect our exchange rate? Since it is pegged exchange rate regime, increasing the level of international trade will affect the exchange rate, so how would the Saudi Central Bank react to this?

Question 5: There are two theories related to where Foreign Direct Investment (FDI) would be invested; one of them is behavioral approach; it is that firms first invest into closer countries which is considered as synch. Explain how would this related to Saudi firms invested on other countries? Do you think this theory applied to Saudi firms or they usually invest on western countries?

Question 6: Would you think a local firm’s action of merging with an international firm justifiable to increase its concentration on the industry globally? For example, if one of the Saudi banks (i.e. Bank AL Rajhi) merge with some other international bank (i.e. First Abu Dhabi Bank) to have higher level of market share in the banking industry. Discuss.

Question 7: Discuss the various risks of international investing.

Question 8: What is the basic difference between a closed-end fund and an open-end fund?

 Question 9: The Closed Fund is a closed-end investment company with a portfolio currently worth $325 million. It has liabilities of $80 million and 5 million shares outstanding. a- What is the NAV of the fund? b- If the fund sells for $45 per share, what is its premium or discount as a percent of net asset value?

 Question 10: Explain the effect of currency fluctuations on rates of return.

Question 11: Explain the characteristics of investing in real estate.

Question 12: When should someone from outside a company be hired to manage the company or one of its business units?

Question 13: When should you gather information outside a case by going to the library or using the Internet? What should you look for?