Reference no: EM131918862

INFORMATION PROVIDED

You are the CEO of a multi-national oil exploration and export firm with headquarters in Russia and majority-owned subsidiaries in Canada, Venezuela, and Iran. Each subsidiary is listed on the local stock exchange in the country where they operate and the entire company is listed on the Moscow Stock Exchange. Each subsidiary reports its profits in the local currency; however, all accounts are consolidated annually by the Parent company in Russian Rubles.

The Canadian economy has been strong and the subsidiary there would like to expand its R&D capacity but lacks sufficient retained earnings with which to finance the expansion.

The Russian Central Bank has reduced interest rates to the lowest level in the last three years.

The Iranian government has just announced a large estimated increase in proven oil reserves in the country.

The Russian Parent company and Canadian subsidiary each maintain a very high proportion of debt relative to equity.

The Venezuelan government has just announced a 10-year “tax-holiday” for foreign firms which invest in new projects in the country.

The local equity beta for each of your operating companies is as follows:

            Russia: 1.5         Canada: 1.0        Venezuela: 3.2        Iran: 2.9

future spot rate

russia - 62.245/$

canada- 1.266/$

iran- 37,982/$

venezuela - 12,023/$

QUESTION

The risk management ( WHICH COUNTRIES AND HOW WOULD YOU HEDGE ) operating, investment, and financial decisions you expect to take due to your forecasts in no.1, the events described above, and your research on the countries where you do business.