Description
Question 1 (3 Marks): Assume a Saudi Multinational Corporation decided to do a project in Germany one year ago (December 1st, 2021), which would be completed on November 30th, 2022. Suppose the project costs 100 million euros and is expected to generate income of 150 million euros on November 30th, 2022. The exchange rate at the beginning of the project is 0.23 Euro/SAR, and it is 0.27 Euro/SAR at the end of the project. There is no derivative bearing SAR currency, but there is a way for a Saudi firm to engage in the forward/options market.
a- Calculate the initial investment in SAR.
b- Show the choices for financing this project by the Saudi firm. Just show without
calculation.
c- Calculate the profit from this investment in Euro and SAR also show whether the Saudi firm was hurt or benefited from changes in the exchange rate movement.
d- How would the Saudi firm hedge against the exchange rate risk?
Question 2 (3 Marks): The US is considered a country that borrows at a lower cost of capital than the rest of the world; briefly explain why.
Question 3 (3 Marks): According to Vision 2030, Saudi Arabia planned to diversify its production, and one of the production divisions is Small & Medium Enterprises (SME). The goal by 2030 is to make 35 percent of GDP from SMEs. Briefly explain whether Saudi Arabia can achieve this goal within this time frame and how the Saudi private
equity market would attract foreign SMEs. You might do a little research about this.
Question 4 (3 Marks): There are two theories related to where Foreign Direct Investment (FDI) would be invested; one of them is the behavioral approach, which is that firms first invest in closer countries considered synch. Explain how this would relate to Saudi firms invested in other countries. Do you think this theory applies to Saudi firms, or do they usually invest in western countries?
Question 5 (3 Marks): If one of the Saudi banks (i.e., Al Bilad Bank) merges with another international bank (i.e., First Abu Dhabi Bank) to have a higher market share in the banking industry. Would you think a local firm’s action of merging with an international firm justifiable to increase its concentration on the industry globally? Discuss.
