Question Details

Mexican peso profits to dollars periodically 



One of the best methods of learning broad concepts in this text is to put yourself in the place of an
MNC manager or board member, and apply the concepts to make financial decisions. Board members
do not normally make the decisions that are discussed here, but must have the conceptual skills to
monitor the policies that are implemented by the MNC- managers. Thus, they must frequently ask
themselves what they would do if they were making the managerial decisions or setting corporate
polices.
Consider the following business that you could easily create: a business that teaches individuals in a
non-U.S. country to speak English. While this business is very basic, it still requires the same type of
decisions faced by large MNCs. Assume that you initially establish this business in Mexico.
Details of Your Business. You live in the U.S. You invested $60,000 to establish a business of a
language school called EE (Escuela de Engles) in Mexico City, Mexico. You hire local individuals in
Mexico who can speak English and train others how to speak English. You have a small subsidiary in
Mexico, which has an office and an attached classroom that you lease. Clients can come to your
subsidiary for a 1-month structured course in English, taught by your employees. You advertise in the
local newspapers to promote the teaching services offered by your business.
You also serve some individuals from Mexico who have taken English classes and want to come to the
U.S. for a one-week intense course in which they can improve and practice their English and practice
it. All revenue and expenses associated with your business are denominated in Mexican pesos. Most of
the profits from the business in Mexico are sent to you by your subsidiary at the end of each month.
While your expenses are somewhat stable, your revenue varies with the number of clients who sign up
for the English-speaking courses in Mexico.
You only need to know this background so that you can answer the related questions that are asked
about your business throughout the term. Answer each question as if you were serving on the board of
your business or as a manager of the business. The questions in the early chapters force you to assess
the firm- opportunities and exposure, while the later chapters force you to offer your input on
potential strategies that your business may pursue.
1.
Your business provides CDs on learning English that compliment the teaching that is provided by your
employees based in Mexico. Assume that you decide to capitalize on these CDs by selling them to a
large retail store based in Mexico. The CDs are not as effective without the teaching, but can be useful
to individuals who want to learn the basics of the English language. You do not want to take the risk
of sending a case of CDs to the retail store unless you can be sure of receiving payment. Explain how
you can ensure payment for the CDs.
2.
Assume that decide not to implement the marketing campaign that you considered in the previous
chapter. You may pursue it next year instead and will attempt to invest some of your profits this year
in money market investments, and then use this money to cover the campaign next year. You can
retain your profits earned this year by investing them in a Mexican bank where interest rates are high.
Alternatively, you could invest the profits in a dollar-denominated bank account. That is, you could
convert your Mexican peso profits to dollars periodically and accumulate the dollars over the year. At
the end of the year, you could convert the dollars back to Mexican pesos, so that you can pay for the
marketing campaign. Explain how you could decide between these two alternatives.




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