This is a group assignment. Your focuse will be on task 2 ONLY of the coursework.
On successful completion of the module, students should be able to:
- understand globalisation and its impact on financial decisions
- understand the components of the international monetary system and the importance of exchange rates
- know the different types of risk related to international finance such as political risk, currency risk, and economic exposure
- understand the macroeconomic aspects of the economy including inflation and fiscal policies
Assessment 1: Group coursework (4 up to 5 maximum number of students in a group)
This assessment is designed to assess your ability to convey external and internal information to assess financial decisions by a multinational company. To this extent, you are playing the role of one of the top executives for this company (e.g., CEO, CFO, COO, etc.) in making the decisions. The assignment covers all the learning outcomes (as stated above) of the module.
Inflation Targeting – Should a multinational firm transact in the UK (a country that adopts inflation targeting since September 1992)?
Disclaimer: This assignment is not about Brexit in its entirety! You do not need to write and define what Brexit is and/or when, where, why, and how it happened. It suffices to say that the readers are knowledgeable enough about the event. The focus is on understanding the implications of post-Brexit event in the UK for a multinational firm (coupled with the current economy in terms of inflation and post-COVID transitions).
One of the most popular strategies for central banks is inflation targeting. This was championed by the New Zealand parliament in 1989 through its Reserve Bank of New Zealand Act. In fact, New Zealand was the first nation in the world to adopt inflation targeting. At present, many of the western industrialist nations have adopted inflation targeting strategy in one form or another as a part of their central banks’ mandate to achieve low and stable inflation. Notwithstanding this, in practice, the outcomes of this strategy vary for different countries.
In the context of the United Kingdom, the Bank of England (through their Monetary Policy Committee (MPC)) has had some challenges in the implementation of this strategy post EU Referendum and coupled with the current inflation and post-Covid issues. One example of this was the then BoE Governor Mark Carney and this team who had a press conference on 03 August 2017 hinting at the possible rate hike by 25 basis points and planned to unwind the stimulus programme in the coming years (contrast this scenario with where we are now – via the recent Monetary Policy Report that was published on 02 November 2022).
- Provide an overview of the UK economy from the central bank’s perspectives by taking into account inflation targeting with the emphasis in the UK around Brexit outcomes and where we are now. Based on the most recent press conference (03 November 2022), do you find justifiable evidence from the MPC team’s plan for any kind of rate adjustment and the reduction of the stimulus programme? In other words, are we experiencing a smooth transitional exit period of adjustments or are we assuming a smooth transitional exit period? Is inflation currently on track with the target? Use Bank of England site and economic data to do your analysis. You should read and use the Bank of England Inflation Report (now it is called simply Monetary Policy Report) as early as February 2016 all the way up to November 2022 to support your arguments as a start. You are also required to use secondary data from various databases (e.g., Bloomberg, Bank of England, Office of National Statistics, Prudential Regulation Authority, Financial Stability Board, etc.) to support your analysis. In addition, some common sense from your general knowledge in accounting, management and other business disciplines should be adopted.
- As an executive of a multinational firm who may be thinking about doing business in the UK, what decisions and/or plans (or contingency plans if you are already doing business in the UK) should you implement following the announcement? Use past financial statements information to highlight important decisions that you are making (i.e., income statement, balance sheet and cash flow statements). Use a real publicly listed company from which you can extract real audited financial statements (between 3 to 5 years of financials should be good). At the end of the day, you should explicitly state in your conclusion of whether or not you and your company are willing to invest in the UK in its current market conditions. Based on your expectations above, are they in line with the actual empirical evidence of the current events that have unfolded? Make some predictions or forecasts for the first quarter on 2023.
- As an executive of a multinational firm, you should also discuss the following issues:
- What impacts the EU referendum outcome, war in Ukraine and COVID have at present on UK’s demands, supplies and exchange rate?
- Are there issues at present about the uncertainty of market access?
- What are the UK government’s plans in terms of forging trading relationships with the EU27 and other countries where the multinational firm is domiciled? Is the UK currently ‘re-orienting’ trade relationships? Do we have a strong external environment? Is there a difference in the type of trade relations with the EU before and after the referendum?
- What is the country’s current Balance of Payments (BoP) and the effects of this balance on global trade (growth)?
- What is the current inflation rate and how does that affect real income growth?
- Is the BoE’s current inflation projection in line with the current inflation rate?
- What is the current trend of consumptions by UK Households? What was the trend before the referendum? What is the firm’s current trend of productions, capacities, and wages? What was the trend before the referendum?
- Are we currently experiencing twin shocks (between Brexit crisis outcome and oil prices) that require conflicting actions from the MPC? This was the case during the credit crunch whereby UK experienced a severe financial crisis whilst oil prices spiked to an all-time high.
NB: The list is not exhaustive by any means that there may be other issues that merit further discussion.
You are to utilise ‘reputable sources’ in gathering your materials for the write-up and AVOID using the ‘usual suspects’ (e.g., Wikipedia, Investopedia, Trading Economics and other ‘less reputable’ references) in your reference list and in-text citations. You are to cite and present your references throughout your writing using a proper referencing format (e.g., Harvard, MLA, APA, etc.). Some good references include: IMF, OECD, BIS, FSB, SEC, FDIC, OCC, CIA, foreign banks’ websites, Bloomberg, central banks’ websites, WSJ, the Economist, World Bank, US DoJ, LA Times, NY Times, Credit Ratings Agencies (Moody’s, Fitch and S&P), and various academic journals.
In today’s environment, students are permitted to use other types of references such as interview scripts, podcasts, iTunes and other good quality ‘social media’ facing for as long as they are of good quality and can be re-verified. If citing a podcast, for example, you should cite the podcast source, title, presenter, the date of the podcast and the time stamp where you are citing specific sentences or phrases. For example of excellent podcasts include UBS Nobel Perspectives podcasts (https://www.ubs.com/microsites/nobel-perspectives/en/home.html) and Lex Fridman podcast on Spotify.
How the assessment is graded:
Your executive expectations (20 marks)
Discussion surrounding your expectations based on the outcome of the most recent MPC’s press conference as well as your critical analysis of how the UK economy has transformed from pre- to post- referendum (including Ukraine war and COVID). Use data to support your argument.
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