Question

Running Your Own MNC

Developing Your Idea
Create an idea for your own MNC to conduct international business. Your idea should
be simplified to the degree that you could possibly implement it someday. However,
your idea should also be sufficiently creative to be successful if done properly. Your
idea should focus on one country and one foreign currency, since many MNCs are
focused in this manner when they are first created. So that you can recognize the
issues regarding exchange rate risk that are discussed throughout this text, you
should assume that you will receive foreign currency when selling your product. Your
idea should be for a small MNC instead of a large MNC because even most large
MNCs began as small firms. The following questions will help you define your MNC
idea:

The product that I have decided to sell is Latex Gloves that manufacture in Indonesia and sell them in Japan

1. Explain how you will use the spot market for your business.

Answer 1

To manage a small MNC that manufactures latex gloves in Indonesia and sells them in Japan, utilizing the spot market will be essential for converting Japanese Yen into Indonesian Rupiah to manage operating costs and mitigate exchange rate risks, ensuring financial stability and profitability for the business.

Step-by-step explanation:

The idea of running your own small Multinational Corporation (MNC) can be realized by selling latex gloves manufactured in Indonesia and selling them in Japan. When considering the implementation of this idea, it is crucial to understand how to use the spot market for the business. The spot market is where foreign exchange currencies are traded for immediate delivery and it is an essential part of international trade, enabling businesses to convert the foreign currency from sales into their home currency or to pay for imports.

In this case, when your MNC sells latex gloves in Japan, you will receive payment in Japanese Yen. You will then use the spot market to convert Yen into Indonesian Rupiah, which is necessary to cover operating costs and re-investment in your business in Indonesia. Understanding the spot market is crucial to managing exchange rate risk, as fluctuations in the exchange rate can impact profit margins. By keeping an eye on the market and making exchanges at optimal times, or through the use of financial instruments like forward contracts, the business can mitigate some of the risks associated with currency fluctuations.