Reference no: EM133184152

Covid-19 looks like a "bend but won't break crisis" for globalization. International capital flows are plummeting, but globalization - and opposition to globalization - will continue to present business opportunities and challenges. Careful attention to the drivers of globalization's future can help companies navigate through and even profit from globalization's turbulence. Sectors including the primary and manufacturing sectors that have been severely impacted by the pandemic in developing economies account for a larger share of their FDI than in developed economies.

The coronavirus (COVID-19) pandemic has severely impacted multinational corporations (MNCs) and foreign direct investment (FDI) in developing countries, jeopardizing these firms' contributions to crucial development outcomes. In addition to bringing capital to developing countries, MNCs are key drivers of global trade, accounting for about 80 percent of total exports. FDI can drive economic transformation by introducing new technologies and best practices in developing countries.

But after a big drop during 2020 caused by the COVID-19 pandemic, global FDI reached an estimated $852 billion in the first half of 2021, showing a stronger than expected rebound[1]. The duration of the health crisis, the pace of vaccinations, especially in developing countries, and the speed of implementation of infrastructure stimulus, remain important factors of uncertainty. In Asia Pacific, S&P

Global Ratings' base-case scenario assumes that corporate balance sheets may recover slowly from 2nd half of 2022, albeit, at a slow pace. Furthermore, this may not be enough to stabilize credit quality yet. Even within countries, there are significant recovery differences expected, depending on the corporate's industry segment of operation. Foreign Direct Investment (FDI) could play an important role in supporting host economies during and after the crisis through financial support to their affiliates, assisting governments in addressing the pandemic, and through linkages with local firms.

You and your team are part of the country risk assessment division in the world-renowned Moody's credit rating agency. This division provides business reports to listed companies considering investing in emerging nations. Deluxe Automotive Manufacturing Company (DAMC) is a Victoria based automotive company that manufactures spare parts of cars, buses, and trucks. The company is aware of country and foreign exchange risks once their operations move from domestic to international markets, but they do not really know what risks and exchange rates are in operation in the various countries, especially as most of the countries are severely affected by Coronavirus. Though some countries have started recovering, still, some others have a long way to go. DAMC currently exports majority of their auto parts to South Korea but their director - Ray Brown - approaches your division with his dilemma:

What FX risk management strategies will you recommend managing the foreign exchange exposure of DAMC? Illustrate your strategy with the usage of at least two foreign exchange derivatives. Explanation with some numbers/dollar value will strengthen your case study.