| Course | TGF-7130 Topics in Global Finance |
|---|---|
| Module | Module 4 |
| Paper type | Module 4 written assignment: managing international business operations |
| Length | About 570 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | MBA in Finance |
| Updated | October 2026 |
Free sample paper for TGF 7130 Module 4
Locking In the Euro and Funding Monterrey: Exchange Risk and Financing for a Growing Exporter
Student Name
MBA in Finance, Thomas Edison State University
TGF-7130: Topics in Global Finance
Mentor Name
Month Day, Year
Locking In the Euro and Funding Monterrey: Exchange Risk and Financing for a Growing Exporter
The Receivable
Our German distributor owes us 2.4 million euros for a large shipment, payable in 90 days. The euro trades today at $1.0850, and a 90-day forward contract is available at $1.0912. If the euro weakens, we receive fewer dollars. Griffin and Pustay (2015) call this transaction exposure, meaning that a currency move can change what a particular receivable or payable in foreign currency is worth.
Three Choices
The forward gives certainty and the highest result unless the euro rises above about $1.09. The option costs $28,800 but keeps the upside: it beats the forward if the euro rises above about $1.103. Leaving the receivable unhedged risks receiving about $147,000 less than the forward guarantees if the euro falls to $1.03.
| Choice | How it works | Dollars received | |
|---|---|---|---|
| No hedge | Convert at the spot rate in 90 days | Depends on future rate | |
| Forward contract | Agree today to sell 2.4 million euros at $1.0912 | $2,618,880 for certain | |
| Put option at $1.0800 | Right to sell euros at $1.0800; premium $0.012 per euro, $28,800 | At least $2,563,200 after premium; more if the euro rises | |
| Rate in 90 days | No hedge | Forward | Option, net of premium |
| $1.03 | $2,472,000 | $2,618,880 | $2,563,200 |
| $1.06 | $2,544,000 | $2,618,880 | $2,563,200 |
| $1.09 | $2,616,000 | $2,618,880 | $2,587,200 |
| $1.12 | $2,688,000 | $2,618,880 | $2,659,200 |
| $1.15 | $2,760,000 | $2,618,880 | $2,731,200 |
Recommendation on the Receivable
Our margin on the shipment is about 18 percent, roughly $470,000. A loss of $147,000 would erase nearly a third of it, a risk we should not carry. Because we have no strong view on the euro's direction, I recommend the forward contract, which costs nothing upfront and gives the best guaranteed result. Allayannis and Ofek (2001) found that firms using foreign currency derivatives reduced their exchange rate exposure, supporting hedging as risk reduction rather than speculation.
Exposure From the Monterrey Plant
The plant will add other exposures. Transaction exposure will arise from peso-denominated wages and local supplier bills. Translation exposure will arise when the Mexican subsidiary's peso balance sheet is converted into dollars for our consolidated statements. Economic exposure, the long-term effect of exchange rates on our competitiveness, may help us: a weaker peso would lower the plant's dollar costs. Bartram et al. (2009) found that derivatives use is widespread among nonfinancial firms internationally, but that firms also manage exposure operationally, for example by earning and spending in the same currency wherever they can.
Financing the Plant
The plant needs about $14 million for building fit-out and equipment. Three sources are possible: a U.S. bank loan in dollars, a Mexican bank loan in pesos or funding from our own cash. Borrowing in pesos would match the plant's peso costs, creating a natural hedge, but Mexican interest rates are several points higher than U.S. rates. Because the plant will earn dollars from exports to the United States, its revenues are largely in dollars; a dollar loan therefore matches revenues, and its lower rate makes it the better choice, with peso borrowing kept for local working capital. A modest peso credit line for wages and local suppliers would match those peso costs without adding much interest expense.
Conclusion
A forward contract protects the euro receivable at no upfront cost. The Monterrey plant will add transaction, translation and economic exposure, best managed by matching currencies where possible. Financing the plant in dollars matches its export revenues and keeps borrowing costs low.
References
Allayannis, G., & Ofek, E. (2001). Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20(2), 273-296. https://doi.org/10.1016/S0261-5606(00)00050-4
Bartram, S. M., Brown, G. W., & Fehle, F. R. (2009). International evidence on financial derivatives usage. Financial Management, 38(1), 185-206. https://doi.org/10.1111/j.1755-053X.2009.01033.x
Griffin, R. W., & Pustay, M. W. (2015). International business (8th ed.). Pearson.
TGF 7130 Module 4 instructions, in plain terms
This written assignment covers managing international business operations, including international finance. Expect to analyze foreign exchange exposure, compare hedging tools such as forwards and options with figures, and explain how a firm should finance and manage the financial risks of operations abroad. Show outcomes at several possible exchange rates in a table, and connect your recommendation to the firm's margins and risk tolerance. This module's material also feeds Part 3 of the final project. Weigh any hedging recommendation against the margin at stake, and explain how the firm can manage exposure through operations as well as financial contracts. Show the dollars received under each choice at several rates. State the forward and spot rates you used.
How this TGF 7130 Module 4 example is built
A euro receivable opens the paper, with transaction exposure defined. Tables compare no hedge, a forward and a put option, then show dollars received at five exchange rates, and the text identifies the break-even points. A recommendation weighs the potential loss against the shipment's margin, with research on hedging. Sections explain the plant's transaction, translation and economic exposure and compare three financing sources, and a conclusion follows. The financing section adds a small peso credit line for local costs, matching currencies where costs are incurred. Break-even rates show where each choice wins. The recommendation compares the possible loss with the shipment's margin, which grounds the hedging choice in the firm's own numbers. Financing choices are compared by currency and cost. Each kind of exposure is defined with an example from the firm.
TGF 7130 Module 4 rubric: what earns full marks
Mentors grade this assignment on correct exposure and hedging calculations, accurate use of international finance concepts, a recommendation tied to the firm's situation and clear writing. Papers that show outcomes across several exchange rates, and identify break-even points, demonstrate command of hedging. Distinguishing transaction, translation and economic exposure shows understanding. Matching financing currency to revenues shows financial judgment. Combining financial hedges with operational matching, such as peso borrowing for peso costs, shows command of international financial management. Break-even points show precise thinking about hedging. Defining each kind of exposure precisely shows command. Clear tables let the reader verify each figure.
Common TGF 7130 Module 4 mistakes, and how to avoid them
Students lose points by miscalculating hedged outcomes, by ignoring the option premium or by recommending a hedge without relating it to the firm's margins. Others confuse translation with transaction exposure. Show results at several rates. Subtract the premium. Compare the possible loss with the margin at stake. Match financing to revenues. Borrow in whatever currency the loan's repayments will be earned in. Include the option premium in every comparison, and state your view on the currency's direction, if any. Show the break-even rate for each choice. A free first sample on your own TGF-7130 international finance assignment is available on request.
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TGF 7130 Module 4 questions, answered
Where can I find a free TGF 7130 Module 4 sample paper?
A euro receivable hedged with a forward and an option, and financing for a Mexican plant, are in the assignment above.
What is transaction exposure?
The chance that a currency move changes what one specific foreign currency receivable or payable is worth in dollars.
How does a forward contract hedge a receivable?
It locks in today the rate at which foreign currency will be sold on a future date.
How does a currency option differ from a forward?
An option sets a floor while keeping upside, at the cost of a premium; a forward gives certainty with no upfront cost.
What is economic exposure?
The long-term effect of exchange rate changes on a firm's competitiveness and value.