RSM437_Assignment2 - RSM 437 International Finance Fall...

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RSM 437 – International Finance Fall 2016 Assignment 2: Case Study General Motors Due date: Monday, November 21st, 2016 (11:59pm) (By e-mail to instructor and TA(s)) You are allowed to work individually or in a group of 2 or 3. You should hand in one solution set per group and each student will receive the same grade. Solutions should be typed as a word document with your excel file attached as an appendix. This page should be the cover page . Team members: 1. Yui Hang Leung 2. Yang Qu 3. Yinuo Zhang In submitting this team project or assignment for grading, we confirm: That the work is original and due credit is given to others where appropriate. That all members have contributed substantially and proportionally to each group assignment. That all members have sufficient familiarity with the entire contents of the group assignment so as to be able to sign off on them as original work. Acceptance and acknowledgement that the team is collectively responsible for assignments found to be plagiarized in any way, and every member will be subject to sanctions under the University’s Code of Behaviour on Academic Matters. Each group member must check the box below and record her/his student number to indicate that they have read and abide by the statements above. 0 [ ] 1000346707 0 [ ] 1000580249 0 [ ] 1000672872
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1. Why is GM worried about the level of the yen? Briefly explain the nature, importance and complexity of GM’s competitive exposure to the Dollar/Yen exchange rate. Since GM operates internationally, it is vulnerable to various risks. The biggest concern for GM to worry about the level of yan is competitive exposure. As the exchange rate fluctuates, GM’s financial position is highly affected. With the depreciating Yen, it gives Japanese automobile companies a price and cost advantage, which hurts U.S. as well as other foreign automakers. Since GM is a U.S. base company, it would also face a relatively higher cost structure compared to Japanese automakers. Feldstein mentioned in the case that for every one-yen depreciation against the dollar, Japanese competitors’ collective operating profit grew by more than $400 million. The case also mentioned that lower costs for Japanese firms would lead to lower required prices to achieve the normal profitability levels, thus eroding GM’s market share—and market value. Furthermore, the change in the exchange rate also affects its investment in a foreign country as well. In this case, GM, a U.S. company, is investing its assets in Japan. GM also faces investment exposure, in which the change in the level of Yen is associated with the domestic investment in GM in Japan. Even though this exposure is not much of a financial risk, it still has a severe impact upon GM’s costs and earnings.
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