Curricula

Objectives

The project is run on the principles of following Intended Learning Outcomes (ILOs):
1. Skills in Critical and Analytical Understanding (IBCRI)- Critically review, analyze, and understand information available from academic and professional business sources.
You will be problematizing the nature and dynamics of financial risks from multiple perspectives that the case company is experiencing. To achieve this ILO, you will be studying multiple theoretical underpinnings, and professional reports and at the same time analyzing stock market data, and accounting information.
2. Applied Business Skills (IBBUS)- Apply disciplinary and interdisciplinary knowledge to analyze business challenges and global trends to propose or put into action practical business solutions based on the findings.
You will be applying your knowledge and skills learned in the Global Financial Management course, primarily to solve the problems related to financial risk management of the case company, in general, and foreign currency exchange rate risk management, in particular.
3. Communication Skills (IBCOM)- Communicate responsibly and effectively in English through oral, written, and digital formats in academic and professional contexts.
You will understand the language that business organizations speak through the numbers! Furthermore, presentations, written reports, corporate annual reports, stock market data, exchange of notes related to the case company will enrich your English language skills in oral, written, and digital formats.
4. Intercultural Collaboration Skills (IBCOL)- Demonstrate intercultural teamwork, leadership, and conflict resolution skills.
You will be working in teams with multicultural, multinational, and multilingual backgrounds, and your skills to work, cooperate, collaborate, and resolve conflicts will improve.
5. Skills for Personal Career Development (IBPER)- Reflect upon and deepen personal and professional learning in order to recognize their strengths to support their career development.
You will acquire several personal and professional skills, which you can apply in solving various business problems in your future career.

Content

The case study: How BMW dealt with exchange rate risk
Xu Bin and Liu Ying OCTOBER 29 2012 [Financial Times] https://www.ft.com/content/f21b3a92-f907-11e1-8d92-00144feabdc0

The story. BMW Group, owner of the BMW, Mini and Rolls-Royce brands, has been based in Munich since its founding in 1916. But by 2011, only 17 per cent of the cars it sold were bought in Germany. In recent years, China has become BMW’s fastest-growing market, accounting for 14 per cent of BMW’s global sales volume in 2011. India, Russia and eastern Europe have also become key markets.

The challenge. Despite rising sales revenues, BMW was conscious that its profits were often severely eroded by changes in exchange rates. The company’s own calculations in its annual reports suggest that the negative effect of exchange rates totalled €2.4bn between 2005 and 2009. BMW did not want to pass on its exchange rate costs to consumers through price increases. Its rival Porsche had done this at the end of the 1980s in the US and sales had plunged.

The strategy. BMW took a two-pronged approach to managing its foreign exchange exposure. One strategy was to use a “natural hedge” – meaning it would develop ways to spend money in the same currency as where sales were taking place, meaning revenues would also be in the local currency. However, not all exposure could be offset in this way, so BMW decided it would also use formal financial hedges. To achieve this, BMW set up regional treasury centres in the US, the UK and Singapore.

How the strategy was implemented. The natural hedge strategy was implemented in two ways. The first involved establishing factories in the markets where it sold its products; the second involved making more purchases denominated in the currencies of its main markets. BMW now has production facilities for cars and components in 13 countries. In 2000, its overseas production volume accounted for 20 per cent of the total. By 2011, it had risen to 44 per cent. In the 1990s, BMW had become one of the first premium carmakers from overseas to set up a plant in the US – in Spartanburg, South Carolina. In 2008, BMW announced it was investing $750m to expand its Spartanburg plant. This would create 5,000 jobs in the US while cutting 8,100 jobs in Germany. This also had the effect of shortening the supply chain between Germany and the US market. The company boosted its purchasing in US dollars generally, especially in the North American Free Trade Agreement region. Its office in Mexico City made $615m of purchases of Mexican auto parts in 2009, expected to rise significantly in following years. A joint venture with Brilliance China Automotive was set up in Shenyang, China, where half the BMW cars for sale in the country are now manufactured. The carmaker also set up a local office to help its group purchasing department to select competitive suppliers in China. By the end of 2009, Rmb6bn worth of purchases were from local suppliers. Again, this had the effect of shortening supply chains and improving customer service. At the end of 2010, BMW announced it would invest 1.8bn rupees in its production plant in Chennai, India, and increase production capacity in India from 6,000 to 10,000 units. It also announced plans to increase production in Kaliningrad, Russia. Meanwhile, the overseas regional treasury centres were instructed to review the exchange rate exposure in their regions on a weekly basis and report it to a group treasurer, part of the group finance operation, in Munich. The group treasurer team then consolidates risk figures globally and recommends actions to mitigate foreign exchange risk.

The lessons. By moving production to foreign markets the company not only reduces its foreign exchange exposure but also benefits from being close to its customers. In addition, sourcing parts overseas, and therefore closer to its foreign markets, also helps to diversify supply chain risks.

COIL Project Task: Read the above case study, and answer the following questions:

Activity 1
1) What currency risk did the BMW face?
2) What hedging strategies BMW has used in order to reduce the currency risk?
3) Critically evaluate these strategies, and do you have any other suggestions for BMW to deal with their exchange rate risk?

Activity 2
4) Select any another car manufacturer that you familiar with (it must involve exports and imports, and/or have overseas factories), search the relevant information from their company website / annual reports, discuss the currency risk they faced and hedging strategies they used.
5) Compare and evaluate the hedging strategies used by BMW and your chosen car manufacturer. Did they follow the same or different strategies in managing their currency risk?
6) Can you provide any general advice for firms on how to select appropriate hedging techniques when managing currency risk?
(Hint: There are three types of exchange rate risk, transaction exposure, translation exposure and economic exposure. Firms may use different hedging techniques (e.g. financial hedging techniques and/or long-term operational hedging techniques) to manage their currency risk. The strategy choices by firms may depend on many factors.)

Time and location

Online project basically starting from 13 February to 15 March 2022

Learning materials and recommended literature

You may find my following YouTube videos as the basic study material-

https://www.youtube.com/watch?v=y5-wqHl3-_M (Direct and Indirect Exchange Rate recorded on 19.11.2020)
https://www.youtube.com/watch?v=CKhDt9_Y3gw (Cross Exchange Rate and Movements of Exchange Rates recorded on 20 November 2020)
https://www.youtube.com/watch?v=juexzEPwur4 (Cross Exchange Rate & Factors Affecting Exchange Rate recorded on 27 November 2020)
https://www.youtube.com/watch?v=wgPiLusX-LQ (International Arbitrage, Covered Interest Arbitrage and Interest Rate Parity Theory- recorded on 4 December 2020)
https://www.youtube.com/watch?v=60nLXzetNsw (FX Forwards and Futures recorded on 11 December 2020…..EXCEPT FOR THE FIRST 11 MINUTES)
https://www.youtube.com/watch?v=SuVGca10E68 (CALL and PUT OPTIONS recorded on 7 January 2021)

More specific details including case study, assignments, deadline are provided as below:
The case study: How BMW dealt with exchange rate risk
Xu Bin and Liu Ying OCTOBER 29 2012 [Financial Times] https://www.ft.com/content/f21b3a92-f907-11e1-8d92-00144feabdc0

The story. BMW Group, owner of the BMW, Mini and Rolls-Royce brands, has been based in Munich since its founding in 1916. But by 2011, only 17 per cent of the cars it sold were bought in Germany. In recent years, China has become BMW’s fastest-growing market, accounting for 14 per cent of BMW’s global sales volume in 2011. India, Russia and eastern Europe have also become key markets.

The challenge. Despite rising sales revenues, BMW was conscious that its profits were often severely eroded by changes in exchange rates. The company’s own calculations in its annual reports suggest that the negative effect of exchange rates totalled €2.4bn between 2005 and 2009. BMW did not want to pass on its exchange rate costs to consumers through price increases. Its rival Porsche had done this at the end of the 1980s in the US and sales had plunged.

The strategy. BMW took a two-pronged approach to managing its foreign exchange exposure. One strategy was to use a “natural hedge” – meaning it would develop ways to spend money in the same currency as where sales were taking place, meaning revenues would also be in the local currency. However, not all exposure could be offset in this way, so BMW decided it would also use formal financial hedges. To achieve this, BMW set up regional treasury centres in the US, the UK and Singapore.

How the strategy was implemented. The natural hedge strategy was implemented in two ways. The first involved establishing factories in the markets where it sold its products; the second involved making more purchases denominated in the currencies of its main markets. BMW now has production facilities for cars and components in 13 countries. In 2000, its overseas production volume accounted for 20 per cent of the total. By 2011, it had risen to 44 per cent. In the 1990s, BMW had become one of the first premium carmakers from overseas to set up a plant in the US – in Spartanburg, South Carolina. In 2008, BMW announced it was investing $750m to expand its Spartanburg plant. This would create 5,000 jobs in the US while cutting 8,100 jobs in Germany. This also had the effect of shortening the supply chain between Germany and the US market. The company boosted its purchasing in US dollars generally, especially in the North American Free Trade Agreement region. Its office in Mexico City made $615m of purchases of Mexican auto parts in 2009, expected to rise significantly in following years. A joint venture with Brilliance China Automotive was set up in Shenyang, China, where half the BMW cars for sale in the country are now manufactured. The carmaker also set up a local office to help its group purchasing department to select competitive suppliers in China. By the end of 2009, Rmb6bn worth of purchases were from local suppliers. Again, this had the effect of shortening supply chains and improving customer service. At the end of 2010, BMW announced it would invest 1.8bn rupees in its production plant in Chennai, India, and increase production capacity in India from 6,000 to 10,000 units. It also announced plans to increase production in Kaliningrad, Russia. Meanwhile, the overseas regional treasury centres were instructed to review the exchange rate exposure in their regions on a weekly basis and report it to a group treasurer, part of the group finance operation, in Munich. The group treasurer team then consolidates risk figures globally and recommends actions to mitigate foreign exchange risk.

The lessons. By moving production to foreign markets the company not only reduces its foreign exchange exposure but also benefits from being close to its customers. In addition, sourcing parts overseas, and therefore closer to its foreign markets, also helps to diversify supply chain risks.

COIL Project Task: Read the above case study, and answer the following questions:

Activity 1
1) What currency risk did the BMW face?
2) What hedging strategies BMW has used in order to reduce the currency risk?
3) Critically evaluate these strategies, and do you have any other suggestions for BMW to deal with their exchange rate risk?

Activity 2
4) Select any another car manufacturer that you familiar with (it must involve exports and imports, and/or have overseas factories), search the relevant information from their company website / annual reports, discuss the currency risk they faced and hedging strategies they used.
5) Compare and evaluate the hedging strategies used by BMW and your chosen car manufacturer. Did they follow the same or different strategies in managing their currency risk?
6) Can you provide any general advice for firms on how to select appropriate hedging techniques when managing currency risk?
(Hint: There are three types of exchange rate risk, transaction exposure, translation exposure and economic exposure. Firms may use different hedging techniques (e.g. financial hedging techniques and/or long-term operational hedging techniques) to manage their currency risk. The strategy choices by firms may depend on many factors.)

Teaching methods

Collaborative Online International Learning (COIL)-Coventry University Project (5 ECTS)- HB00BN65
JAMK University of Applied Sciences is organizing a project in partnership with Collaborative Online International Learning (COIL), Coventry University, the UK. The core idea of this online project is to, first, assess the foreign exchange risk exposure of multinational corporations; and second, recommend tools and techniques of risk management (hedging) after in-depth data analysis, and reviewing numerous theoretical arguments and counterarguments.
Coventry University is the organizer of the COIL project, whereas JAMK, Finland, and Universidad de Monterrey, Mexico will be the other participating universities.
As a group participant, you will be studying and analyzing BMW as the case company. The group size will be 5 (with some exceptions) and the number of groups will be most likely 30. The preliminary group arrangement is that each group will be comprised of 5 students- 3 (Coventry University) and one each from JAMK and Universidad de Monterrey. However, I can accept more than 30 JAMK students since the group size, composition, and group numbers can vary.
You will be using the Moodle Learning Platform of Coventry University.
You will be assessed as Pass/Fail. Participants will also be issued certificates by Coventry University.
If you have studied one or more of the following courses: Management Accounting, Financial Management, and Global Financial Management (online), you will find this project even more interesting.

The project is run on the principles of following Intended Learning Outcomes (ILOs):
1. Skills in Critical and Analytical Understanding (IBCRI)- Critically review, analyze, and understand information available from academic and professional business sources.
You will be problematizing the nature and dynamics of financial risks from multiple perspectives that the case company is experiencing. To achieve this ILO, you will be studying multiple theoretical underpinnings, and professional reports and at the same time analyzing stock market data, and accounting information.
2. Applied Business Skills (IBBUS)- Apply disciplinary and interdisciplinary knowledge to analyze business challenges and global trends to propose or put into action practical business solutions based on the findings.
You will be applying your knowledge and skills learned in the Global Financial Management course, primarily to solve the problems related to financial risk management of the case company, in general, and foreign currency exchange rate risk management, in particular.
3. Communication Skills (IBCOM)- Communicate responsibly and effectively in English through oral, written, and digital formats in academic and professional contexts.
You will understand the language that business organizations speak through the numbers! Furthermore, presentations, written reports, corporate annual reports, stock market data, exchange of notes related to the case company will enrich your English language skills in oral, written, and digital formats.
4. Intercultural Collaboration Skills (IBCOL)- Demonstrate intercultural teamwork, leadership, and conflict resolution skills.
You will be working in teams with multicultural, multinational, and multilingual backgrounds, and your skills to work, cooperate, collaborate, and resolve conflicts will improve.
5. Skills for Personal Career Development (IBPER)- Reflect upon and deepen personal and professional learning in order to recognize their strengths to support their career development.
You will acquire several personal and professional skills, which you can apply in solving various business problems in your future career.

Practical training and working life connections

Coventry University is the organizer of the COIL project, whereas JAMK, Finland, and Universidad de Monterrey, Mexico will be the other participating universities.

Exam dates and retake possibilities

These will be notified later

Evaluation scale

0-5

Evaluation criteria, satisfactory (1-2)

Participation in the project activities and some basic analysis of the case study.

Evaluation criteria, good (3-4)

Participation in the project activities and some basic analysis of the case study. Calculations are correct, and inferences are drawn.

Evaluation criteria, excellent (5)

Participation in the project activities and some basic analysis of the case study. Calculations are correct, inferences are drawn, and interpretations are made.