I have attached Milestone 1 & 2 and the feedback from each of them.  I have also attached the rubric for final Milestone.  I need milestone 1&2 combined with the feedback from each. I will also need the requirements for the final Milestone to be completed.INT 620 Final Project Guidelines and Rubric
Overview
The final project for this course is the creation of a Foreign Exchange Rate Risk Management in Multinational Enterprise in Business Strategy. You will examine
how a multinational enterprise (MNE) uses foreign exchange risk management in its business strategy.
The final project for this course consists of two major components. The first component is a Case Study Briefing document that focuses on a case study of foreign
exchange risk management techniques currently used in a multinational enterprise (MNE). You will complete a briefing document in Module Five that focuses on
the risk management techniques currently used in the MNE that you have chosen. Within this document, you will address the background and nature of the
company’s business, the exposure to foreign exchange rate the company faces (i.e., through its accounts payable because it imports, through its accounts
receivable because it exports, or through both accounts), and the tools or techniques the company currently uses to mitigate those risks (i.e., the company uses
foreign debt to hedge the currency exposure, using derivatives such as currency swaps, futures, forwards, or options, for only a certain number of months to
hedge only a certain percentage of the exposure, etc.).
The second component is a Subsidiary Expansion or an Investment document that focuses on your research to expand this MNE into a new country. The country
could be the country in which the MNE is currently located. Or, it could be any country that you are interested in expanding into. Within this document, you will
address the capital structure of the new subsidiary and, if the company has debt financing, from where or which currency you would get the debt financing, and
why. Once the company breaks even and starts making a profit, how would you manage the profit (i.e., need to invest for expansion for growth or because of
restrictions on blocked funds, repatriate back to the mother company annually because you are not certain of the country and currency risk, etc.)?
The project is divided into two milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final
submissions. These milestones will be submitted in Modules One and Five. The final submission will be in Module Nine.
In this assignment, you will demonstrate your mastery of the following course outcomes:





Analyze the fundamentals of foreign exchange risk management in mitigating corporate risk
Interpret exchange rate movements when assessing the foreign exchange risk on the corporation by examining the institutional structure and
mechanisms of foreign exchange markets
Evaluate the financial and strategic impact of foreign exchange risk on the corporation for shaping future risk management and funding strategies
Analyze how the dynamics of global capital markets shape the foreign exchange market for determining funding strategies and mitigating corporate risk
Propose appropriate international capital budgeting strategies for managing multinational corporations’ international monetary relationships
Prompt
Multinational corporations (MNEs) operate globally with several established subsidiaries in foreign countries. In this project, you will choose a MNE. You will then
download the company’s annual report and analytically research the company to understand its current foreign exchange rate exposure, and the tools or
techniques the company uses to mitigate the risks. Moreover, you will choose a country in which you will expand your presence and create a new subsidiary. You
will need to identify your capital structure for your new subsidiary, as well as plan for your profit repatriation.
Resources to consider:
 Corporate Income Tax Rates Around the World, 2014
 KPMG: Corporate Tax Rates Table
 Country and Lending Groups
 World Trade Organization: Statistics Database
 U.S. Free Trade Agreements
 How Much Do U.S. Multinational Corporations Pay in Foreign Income Taxes?
 Global Financial Development
 International Debt Statistics
Specifically, the following critical elements must be addressed:
I.
Company Proposal and Background: Provide a brief historical background on the firm you have selected, including the nature of its products or services.
II. Foreign Exchange Risk Management Analysis: Analyze the firm’s transactions, its foreign exchange rate risk exposure, and the tools the firm currently uses
to mitigate the risk.
a) Explain the firm’s specific transactions, which are the accounts payable and accounts receivable, and how these transactions expose the firm to
foreign exchange rate risk. Some firms could be exposed to both of the accounts because they import raw materials from foreign countries, add
value to the product, and then re-export the product to other foreign countries. However, the net exposure must be only one account.
b) Identify the tools the firm currently uses in mitigating the foreign exchange rate risk. Occasionally, firms utilize more than one tool to hedge the
risk. Some examples of tools are using foreign debt to hedge the foreign income, or using derivatives such as currency swaps, futures, forwards,
or options.
c) However, most of the time, the company does not fully hedge its exposure to the foreign currency. You must explain the percentage hedge of its
exposure as well as the hedging time length. Then, you must provide the potential risk to which the company could still be exposed from the
foreign exchange rate.
III. Investments/Subsidiary Expansion: Choose a country to enter to create a new subsidiary. Determine the capital structure of your new subsidiary,
including the source of funding.
a) Provide an explanation of the country in which you chose to create a new subsidiary. It is possible that the country you selected already has a
subsidiary of your MNE, which is fine.
b) Explain what the capital structure for this new subsidiary should look like. Should it be the same as the mother company’s? Why? If your
subsidiary should have debt, determine the source of the debt and explain your rationale for choosing the source.
IV. Repatriations of Funds: Once your subsidiary turns a profit, evaluate how you will repatriate your profit. You will need to look into the country in which
the subsidiary is located and determine if it has any restrictions on blocked funds. If so, you must incorporate the findings into your final decision. Explain
if you will repatriate your profit back annually on all, or only partially, and why.
Milestones
Milestone One: Company Proposal and Background
In Module One, you will submit your Company Proposal and Background short paper. The paper should include a brief historical background of your chosen
firm’s business. It should include the nature of the firm’s products or services, as well as its geographical exposure and foreign exchange exposure. The format
should be a one- to two-page Microsoft Word document. This milestone is graded with the Milestone One Rubric.
Milestone Two: Foreign Exchange Risk Management Analysis
In Module Five, you will submit your Foreign Exchange Risk Management Analysis. Your analysis should include foreign exchange risk net exposure and the tools
or techniques your chosen company currently uses to mitigate the risk. In Milestone Two, you will also analyze the company’s hedging characteristics and other
potential risks that might arise from this imperfect hedge. This milestone is graded with the Milestone Two Rubric.
Final Submission: Final Report
In Module Nine, you will submit your Final Report. It should be a complete, polished artifact containing all of the critical elements of the final project. It should
reflect the incorporation of feedback gained throughout the course. This submission is graded with the Final Project Rubric.
Final Project Rubric
Requirements of Submission: Written components of projects must follow these formatting guidelines when applicable: double spacing, 12-point Times New
Roman font, one-inch margins, and discipline-appropriate citations. Eight to twelve pages are required, not including the cover page and resources.
Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information,
review these instructions.
Critical Elements
Company Proposal
and Background
Exemplary (100%)
Meets “Proficient” criteria and
the background information
provided is substantiated by
scholarly research
Proficient (90%)
Provides a brief historical
background on the firm
selected, including the nature of
its products or services, by
providing examples
Foreign Exchange
Risk Management
Analysis
Meets “Proficient” criteria and
each transaction is justified by
scholarly evidence
Foreign Exchange
Risk Management
Analysis
Meets “Proficient” criteria and
the examples provided are a
product of scholarly research
Foreign Exchange
Risk Management
Analysis
Meets “Proficient” criteria and
is substantiated by scholarly
evidence
Analyzes the firm’s specific
transactions: accounts payable
and accounts receivable, and
how these transactions expose
the firm to foreign exchange
rate risk by providing evidence
of each transaction
Identifies the tools the firm
currently uses in mitigating the
foreign exchange rate risk, by
providing examples
Analyzes the percentage hedge
of the company’s exposure and
the hedging time length by
providing specific examples
Investments/
Subsidiary
Expansion:
Meets “Proficient” criteria and
the explanation of the new
subsidiary is substantiated by
scholarly evidence
Provides an explanation of
chosen country to create a new
subsidiary by using specific
examples for reasoning
Needs Improvement (70%)
Provides a brief historical
background on the firm
selected, including the nature of
its products or services, but
does not provide specific
examples
Analyzes the firm’s specific
transactions and the possible
exposure to risk, but does not
provide evidence of each
transaction
Not Evident (0%)
Does not provide historical
background of the company
selected
Value
13
Does not analyze the firm’s
transactions or possible
exposure to risk
13
Identifies the tools the firm
currently uses in mitigating the
foreign exchange rate, but not
does provide specific examples
Analyzes the percentage hedge
and the hedging time of the
company’s exposure, but the
submission does not include
specific examples
Provides an explanation of the
chosen country but does not
use specific examples for
reasoning
Does not identify the tools the
firm currently uses to mitigate
the foreign exchange rate
13
Does not analyze the
percentage hedge and/or the
hedging time of the company’s
exposure
13
Does not provide an explanation
of the chosen country selected
for possible expansion
12
Investments/
Subsidiary
Expansion:
Meets “Proficient” criteria and
the outcomes selected are
substantiated by scholarly
research
Provides an explanation of the
capital structure’s anticipated
outcomes and source of
funding. Submission includes a
determined source of debt, if
applicable, and provides specific
examples of each finding
Repatriations of
Funds:
Meets “Proficient” criteria and
the plan to repatriate is
substantiated by scholarly
research
Articulation of
Response
Submission is free of errors
related to citations, grammar,
spelling, syntax, and
organization and is presented in
a professional and easy-to-read
format
Provides an explanation of how
the group will repatriate the
profit and identifies whether it
should be done annually on all,
or only partially
Submission has no major errors
related to citations, grammar,
spelling, syntax, or organization
Provides an explanation of the
capital structure’s anticipated
outcomes and source of
funding, and determines
whether or not the company
has any debts, but does not
provide specific examples of
each finding
Provides an explanation of how
the group will repatriate the
company’s profit but does not
identify whether it should be
done annually on all, or partially
Submission has major errors
related to citations, grammar,
spelling, syntax, or organization
that negatively impact
readability and articulation of
main ideas
Does not provide an explanation
of the capital structure’s
anticipated outcomes or the
company’s source of funding;
nor does the submission
determine whether or not the
country has any debt
13
Does not provide an explanation
of how the group will repatriate
the company’s profit
13
Submission has critical errors
related to citations, grammar,
spelling, syntax, or organization
that prevent understanding of
ideas
10
Earned Total
100%
Aon Corporation (AON) is an international conglomerate that was the leader in the
middle market and provided management consulting, risk management, reinsurance brokerage,
human capital consulting, and insurance. AON was established in 1919 and its headquarters was
in Chicago, IL. Aon has since moved its headquarters to London, England effective January
2012. The shareholders have had the benefit of receiving dividends since 1993, and the
dividend amount has continued to increase quarter after quarter since 2012.
In 2012, AON completed its acquisition of Hewitt Associates, Inc. (Lyer et al, 2012).
Prior to that time Hewitt was a seventy year old company that provided consulting services,
human resource benefits, and outsourcing globally. The company breaks its operation down into
three segments: Benefits Outsourcing Segment; Human Resource Business Process Outsourcing
(HR BPO) Segment; and Consulting Segment.
The Benefits Outsourcing Segment includes administrative services for health and
welfare, defined contribution and defined benefit plans. The company’s proprietary Total Benefit
Administration (TBA) system integrates the administration of clients’ primary benefits
programs. The benefits programs are as follows: defined benefits, defined contribution and
health and welfare. The TBA system allows integrated administration with multiple access
venues. These venues are: call centers, interactive voice response and the internet. Your
Benefits Resources (YBR), client employees can execute transactions and manage their benefit
programs using modeling tools and various support references. Through the TBA system, the
company manages clients’ annual enrollment processes, communicates to employees their
available options and supports employee health and welfare decision-making.
Hewitt Associates was the leader in the large market of benefit outsourcing. Prior to
2012, Hewitt had its footprint in thirty-three countries. After the acquisition, the Hewitt’s name
was changed to AON Hewitt. This acquisition meant that AON Hewitt would have its footprint
in 120 countries of the world and be the global leader in both the mid-market and large market of
benefits. The combination of the two entities makes AON a global leader in the benefit business.
The impact of being a global leader will have the trickle-down effect in the foreign
exchange market as well. AON is not immune to this and felt the impact during quarter one in
2016. According to Hofmann (2016), Aon P.L.C.’s first quarter 2016 revenues dropped 1.9%.
The foreign exchange market has felt the sting and pinch of the drop in revenue in a negative
way. The impact is that a 3% disparaging impression from foreign currency perspective and a
2% reduction in commissions and costs interconnected to net divestitures. AON’s overall
income was decreased by 4.1% (Hofmann, 2016).
References:
AON: Dividend Date & History for Aon Corp. (n.d.). Retrieved May 25, 2016, from
http://www.dividend.com/dividend-stocks/financial/accident-and-health-insurance/aonaon-corp/
Employee Benefits: One Size No Longer Fits All – Aon | The One Brief. (2016, April 20).
Retrieved May 23, 2016, from http://www.theonebrief.com/beyond-one-size-fits-allemployee-benefits/
Hofmann, M. (2016, April 4). Current Issue. Retrieved May 25, 2016, from
http://www.businessinsurance.com/article/20160429/NEWS06/160429764
Lyer, S., Neligan, M., Samuel, M., & Waterman, W. (2012, January 13). Aon to move
headquarters to London. Retrieved May 24, 2016, from
http://www.reuters.com/article/us-aoncorp-idUSTRE80C1G020120113
Running Head: Final Project Milestone Two:
Foreign Exchange Risk Management Analysis
1
AON Corporation
Southern New Hampshire University
06/20/2016
Running Head: Final Project Milestone Two:
Foreign Exchange Risk Management Analysis
2
AON’s specific transactions:
Accounts payable – this is the money that AON owes to its suppliers, which is referred to as
AON’s liability. AON records its account payable in the ‘Accounts Payable sub ledger’. They
are usually recorded when the invoice has been vouched for making the payment. For purpose of
clarification, vouched or vouchered mean that the invoice has been approved for payment and
thus, recorded in AON’s General Ledger.
Account receivable – it is AON’s legally enforceable claims for the payments that are usually
held by AON against its clients and customers for the services rendered and goods supplied
when executing the customer’s orders. They are often come in form of invoices that are raised by
AON. They are indicated in AON’s balance sheet in form of asset. Account receivables are
typically regarded as one of many series of accounting transactions that deal with the customer’s
billing for services and goods. It is important to note that account receivable is different from the
note receivable, which are described as the debts that are created by means of legal instruments
referred to as promissory notes.
How the transactions expose the firm to foreign exchange rate risk:
It is important to note that the foreign exchange transaction requires some forms of settlement
through either receipt or payment in foreign exchange. As such, when the exchange rate changes
between the sale transaction date, the original purchase and settlement date, there tends to be a
gain and loss on the exchange.
Running Head: Final Project Milestone Two:
Foreign Exchange Risk Management Analysis
3
In regards to AON in quarter one 2016, the amount of revenues decreased by 1.9%. This is a
direct loss of $2.79 billion. The loss can be directly attributed to downturn and adverse effect of
the foreign exchange. According Hofmann (2016), AON’s earnings statement revealed that the
overall drop reflected a “3% unfavorable impact from foreign currency translation and a 2%
decrease in commissions and fees related to net divestitures, partially offset by 3% organic
revenue growth (Hofmann, 2016).
The tools the AON Corporation uses to mitigate the foreign exchange rate risk:
Making payment in dollars – this is considered to the most mitigating solutions to this problem.
The company can require all of its customers to make their payments in United States dollars.
This forces the onus on the customers to bear the risk involved in the event of currency
fluctuations.
Requiring a prompt payment – despite the fact that currency exchange rates float frequently, they
typically don’t move significantly. Therefore, it is important for AON to set its contracts to have
short payment terms.
Charging more – by charging more, Aon will be able to get its baseline price. Suppose the
transacting currency drops, the increased baseline price will help to offset the deficit. For
instance, if the transacting currency increases or stays flat, AON will be able to get an extra
profit.
The percentage hedge of exposure – also referred to as net exposure, percentage hedge of
exposure is described as the difference between the hedge fund’s short and long exposure. It can
also be described as the measure of the extent to which trading book’s funds can be exposed to
fluctuations in the market. It is usually adjusted in accordance with AON’s investment outlook.
Running Head: Final Project Milestone Two:
Foreign Exchange Risk Management Analysis
4
Potential risk to which AON could still be exposed from foreign exchange rate:
Translation exposure – it is an exposure that arise from the current fluctuation’s effect on AON’s
financial statements
Transaction exposure – it arises from the effect of the fluctuation of the exchange rate with
regards to AON’s obligations to receive or make payments. It is considered as the medium-term
to short-term exposure.
Feedback to Learner 7/4/16 2:11 AM
Christine, Good job on your Milestone #2. Your Milestone had couple of things that need to be
addressed before the final. Please include it for the final project. I have taken little points off.
Please let me know if you have any questions and will need help with it. Zuzana
1) Explained A as written in Milestone 2 requirement – YES and NO – For final project you
should expand on this for “exemplary”. Use at least three years and I would suggest outing the
data into a table.
2) Explained B as written in Milestone 2 requirement – YES
3) Explained C as written in Milestone 2 requirement –YES and NO – you need more detail in
this part. You have missed the percentage impacts. You need to take the information from part
one and calculate the impacts on revenues.
4) Ontime –YES
5) APA format –YES
6) References – YES
Running Head: Final Project Milestone Two:
Foreign Exchange Risk Management Analysis
5
References
Andersen, T. G., Bollserslev, T., Christoffersen, P. F., & Diebold, F. X. (2012). Financial risk
measurement for financial risk management (No. w18084). National Bureau of Economic
Research.
Bessis, J., & O’Kelly, B. (2015). Risk management in banking. John Wiley & Sons.
Hofmann, M. A. (2016, April 29). Aon profit dips on foreign exchange in first quarter. Retrieved
June 20, 2016, from
http://www.businessinsurance.com/article/20160429/NEWS06/160429764
Lam, J. (2014). Enterprise risk management: from incentives to controls. John Wiley & Sons.

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