Explain how variations in exchange rates and the cost of money influence financial management decisions.

You are asked to help put together a training program describing the effects of exchange rates to training participants at Axetem. Your training material is to address the following:

Explain the Fisher effect and its mechanics by walking the trainees through a step-by-step explanation in the following hypothetical situation:

  • If the real interest rate is 5%, the U.S. inflation rate is at 3%, and the inflation rate of the euro area (the countries that use the euro) is at 4%, what are the nominal interest rates for both the United States and the euro area? Interpret the calculation for your trainees.
  • What are at least 3 implications of exchange rate fluctuations for Axetem as they relate to marketing and production decisions?

 1–2 pages (400 word min.)

ASSIGNMENT OBJECTIVES

Analyze the risk and return of management decisions for the multinational firm.

Explain how variations in exchange rates and the cost of money influence financial management decisions.

Axetem International, Inc. is a successful, Washington-based, public company and a manufacturer of various high-quality running and cross-training athletic shoes.

In addition to its national wholesale operation, Axetem, Inc. also maintains several satellite wholesale branch offices outside of the United States. These include office locations in Canada, France, the United Kingdom, and a currently nonoperational office in the Middle East.

Assume that you are a foreign business operations analyst for Axetem, Inc. Your job responsibilities include not only various business analyses but also the task of cross-training various employees in matters relating to Axetem’s foreign operations.

 

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Explain how variations in exchange rates and the cost of money influence financial management decisions.

APA

440 words

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