FIN534 Week 10 Scenario Script: International monetary system and exchange rate policies. Slide # Scene/Interaction Narration Slide 1 Intro Scene Create input for student to type their name in. Slide 2 Scene 2 FIN534_10_2_Don-1: Good day, everyone. This is a big day for the company; we will find out if we will be expanding out west or not! Joe is meeting with the Board of Directors about the expansion project. He is reviewing all of the information that you have thoroughly analyzed. FIN534_10_2_Don-2: When you think about it, you have done several analyses in such a small time window. We really pushed you and the results have been impeccable! We are presenting a good case for expansion but the Board is cash conscious so I am not sure how they are going to vote. I like to think that the “C” in TFC is for “Cash” and not “Center”. FIN534_10_2_Linda-1: Don, we have really learned a lot about TFC over this time as well. One thing for sure is there is a lot of analysis that goes into a project no matter the size. I can’t even imagine what it would be like if we decided to expand internationally? FIN534_10_2_Don-3: That is interesting that you should mention international expansion as TFC has that in its long term planning. So, as we wait for a decision to be made on the west coast expansion project, we would like you to look at one more area of consideration. This area includes the international monetary system including exchange rates. This is only in the discussion phase, so don’t worry about completing another full analysis like we did with the expansion project. This is only for information gathering. I bet you are happy to hear that! <laughter> Slide 3 Scene 3 · Linda in conference room · Cash Budget on Screen · Go to next slide FIN534_10_3_Linda-1: Thanks, Don. I remember my international finance course at Strayer University. We learned about the factors that influence trade and capital flows and the economic variables that influence exchange rate movements. FIN534_10_3_Linda-2: Money is considered a medium of exchange and every nation has some form of monetary system in place. We use the dollar as our means of exchange. In many countries in Europe the Euro is used. And in Japan there is the Yen. Whereas Hong Kong has the Hong Kong dollar. It is important for one to know the exchange rates and how each country’s monetary system works, as that may contribute to additional risk by a company when dealing internationally. FIN534_10_3_Linda-3: Let’s get back to the United States. In the U.S., the Federal Reserve is the monetary authority. Its prime responsibility is to try to have the economy grow while keeping inflation in check. But when it comes to trading between nations with different currencies, the international monetary system is used in determining how companies in different nations can exchange with another. Let’s look at some exchange rate systems over time. Slide ...

1. FIN534 Week 10 Scenario Script: International monetary
system and exchange rate policies.
Slide #
Scene/Interaction
Narration
Slide 1
Intro Scene
Create input for student to type their name in.
Slide 2
Scene 2
FIN534_10_2_Don-1: Good day, everyone. This is a big day
for the company; we will find out if we will be expanding out
west or not!
Joe is meeting with the Board of Directors about the expansion
project. He is reviewing all of the information that you have
thoroughly analyzed.
FIN534_10_2_Don-2: When you think about it, you have done
several analyses in such a small time window. We really
pushed you and the results have been impeccable! We are
presenting a good case for expansion but the Board is cash
conscious so I am not sure how they are going to vote. I like to
think that the “C” in TFC is for “Cash” and not “Center”.
FIN534_10_2_Linda-1: Don, we have really learned a lot
about TFC over this time as well. One thing for sure is there is
a lot of analysis that goes into a project no matter the size. I
can’t even imagine what it would be like if we decided to
expand internationally?
FIN534_10_2_Don-3: That is interesting that you should

2. mention international expansion as TFC has that in its long term
planning.
So, as we wait for a decision to be made on the west coast
expansion project, we would like you to look at one more area
of consideration. This area includes the international monetary
system including exchange rates. This is only in the discussion
phase, so don’t worry about completing another full analysis
like we did with the expansion project. This is only for
information gathering. I bet you are happy to hear that!
<laughter>
Slide 3
Scene 3
· Linda in conference room
· Cash Budget on Screen
· Go to next slide
FIN534_10_3_Linda-1: Thanks, Don. I remember my
international finance course at Strayer University. We learned
about the factors that influence trade and capital flows and the
economic variables that influence exchange rate movements.
FIN534_10_3_Linda-2: Money is considered a medium of
exchange and every nation has some form of monetary system in
place. We use the dollar as our means of exchange. In many
countries in Europe the Euro is used. And in Japan there is the
Yen. Whereas Hong Kong has the Hong Kong dollar.
It is important for one to know the exchange rates and how each
country’s monetary system works, as that may contribute to
additional risk by a company when dealing internationally.
FIN534_10_3_Linda-3: Let’s get back to the United States.
In the U.S., the Federal Reserve is the monetary authority. Its

3. prime responsibility is to try to have the economy grow while
keeping inflation in check.
But when it comes to trading between nations with different
currencies, the international monetary system is used in
determining how companies in different nations can exchange
with another.
Let’s look at some exchange rate systems over time.
Slide 4
Scene 4
· Exchange Rates
· Linda speaking
FIN534_10_4_Linda-1: The first system was called the
Fixed Exchange Rate System. With this system, non U.S.
currencies were tied to the U.S. dollar. The U.S. dollar was tied
to gold at thirty five dollars an ounce. During this time, the
United States would try to ensure that the price of gold would
stay at thirty five dollars an ounce, hence keeping it fixed,
while other countries used these monetary policies to keep their
exchange rates within reason of the United States. It is also
used to control inflation.
FIN534_10_4_Linda-2: This might sound like a good system
but there were flaws. Mainly the reasons for spikes or drops in
the economy were not being addressed. For example, if the
demand for the Hong Kong dollar was high, steps would be
taken by Hong Kong to put more Hong Kong dollars into the
economy.
FIN534_10_4_Linda-3: With this system, countries would
basically fabricate the supply and demand system instead of
looking at the real reasons behind the rise or fall in currency
prices. As you probably guessed, a system like this one didn’t
last too long.

4. Slide 5
· Exchange Rate systems
FIN534_10_5_Linda-1: Another system is called the Floating
Exchange Rates; it is also called the fluctuating exchange rate.
With this system, the prices of currency for countries are based
on supply and demand in regard to international trade and
investing. So, the exchange rates float as supply and demand
varies.
FIN534_10_5_Linda-2: With the Floating Exchange Rate
system, domestic currency can appreciate or depreciate against
foreign currency. This fluctuation produces an exchange rate
risk.
FIN534_10_5_Linda-3: Another system is the Managed
Floating Rate system. With this system, there is a lot of
government involvement in controlling a country’s exchange
rate by managing the supply and demand for the country.
FIN534_10_5_Linda-4: And a fourth system is a Pegged
Exchange Rate system. Under this system, a country’s currency
exchange rate follows the currency of another country or a
conglomerate of country currencies. However, if the exchange
rate for a country starts to vary too much from what the pegged
country’s established, the country’s government may become
highly involved to ensure the currency exchange rate is back on
track.
Slide 6
Scene 6
· CYU Matching Drag and Drop
Match the description to the correct Exchange Rate System.
Exchange Rate System
Description
Fixed

5. Is tied to the Gold rate
Floating
International Trade and investing helps set rate
Managed
Has a lot of government intervention
Pegged
Has a target fixed rate with another currency
If they get it right – Great job. There are different types of
Exchange Rates and countries should choose the one that best
helps their economy.
If they get it wrong – Nice try but Fixed Exchange Rates used
gold as a standard, while Floating has more fluctuation. With
Managed Exchanged Rates the particular country’s government
intervenes. And Pegged Exchange Rates tend to follow other
currencies.
Slide 7
Scene 7
· Don speaking
· Exchange Rate picture
FIN534_10_7_Don-1: Great job!
Excuse me a second, Joe just texted me,
<looks at phone>
He said he is still in the board meeting and would like us to
continue with our international analysis and focus on the
exchange rate risks. He also is hoping for a decision by the
board soon regarding the expansion proposal.
FIN534_10_7_Linda-1: While I was hoping for a quick

6. decision, the good news is they are still discussing the
expansion. Let us take a look at Exchange Rate Risk.
As we all know, not every country uses the same currency. Due
to this, there can be fluctuations in prices paid or received
through exports and imports. Companies need to consider this
when dealing with other currencies. What they paid for an item
the first time it may not be the same the second time if the
exchange rate differs.
Let’s look at an example.
Slide 8
Scene 8 – Exchange Rate Example
· Equation:
· 1 US Dollar/.7414 Euros = X U.S. Dollars/10,000 Euros
· Next slide
FIN534_10_8_Linda-1: Let’s assume you are dealing with a
company that has the Euro as its currency. Note the Euro is the
basic unit of currency among participating European Union
countries. The rate today is that one U.S. Dollar can buy point
seven-four-one-four Euros. So, if TFC was going to buy
something that cost ten thousand Euros, it would cost TFC, in
U.S. dollars, thirteen thousand four hundred eighty seven
dollars. That is because each U.S. Dollar can only be
exchanged for point seven-four-one-four Euros.
FIN534_10_8_Linda-2: Looking at it mathematically, we can
set up the rate of the two currencies. Look at the formula on the
board and notice that we are looking for U.S. Dollars. We can
do the same if we were exchanging for Euros instead of U.S.
dollars.
Slide 9
Scene 9 –

7. · Linda
· Exchange Rate Risk
FIN534_10_9_Linda-1: With the example you can see what is
needed under each country’s currency. But where is the risk?
That comes from the currency rates. The rate from our example
was
one U.S. Dollar can buy point seven-four-one-four Euros. What
if the exchange rate was one U.S. Dollar can buy point six-five-
two-four Euros? Assuming the same ten thousand Euros, it
would cost TFC, in U.S. dollars, fifteen thousand three hundred
twenty eight. That is because each U.S. Dollar can only be
exchanged for point six-five-two-four Euros. That is where the
risk is. If we waited for a better rate with the international
country and it never happened, as in our case it got worse, the
money paid out would be greater. That is why timing is
important when dealing with foreign currencies.
FIN534_10_9_Linda-2: Let us go even further. What if the
rate was one U.S. Dollar can buy point eight six seven three
Euros? Assuming the same ten thousand Euros, it would cost
TFC, in U.S. dollars, eleven thousand five hundred thirty. That
is because each U.S. Dollar can be exchanged for a better rate
of point eight six seven three Euros.
FIN534_10_9_Linda-3: With the above in mind, can you look
at a few more exchange rates while I check on the progress of
the board meeting?
Slide 10
Scene 10
1. CYU
2. Linda would like you to calculate the exchange rates as
follows:
TFC is considering doing business with an international

8. company that uses the Japanese Yen as its currency. Please
calculate the US Dollar or Japanese Yen as indicated below:
The exchange rate is 1 US Dollar = 98.7641 Yen. Round each
to whole number (no decimals).
1) How much would it be in U.S. dollars to purchase something
that costs 1500 Yen?
Answer: $15
If get wrong, remember the rate:
· 1 US Dollar/98.7641Yen = X U.S. Dollars/1,500 Yen
2) How much would it be in U.S. dollars to purchase something
that costs 25,000 Yen?
Answer: $253
If get wrong, nice try but remember:
· 1 US Dollar/98.7641Yen = X U.S. Dollars/25,000 Yen
3) How much would it be in Japanese Yen to purchase
something that costs 500 US? Dollars?
Answer: 49,382 Yen
If get wrong, nice try but remember:
· 1 US Dollar/98.7641Yen = 500 U.S. Dollars/X Yen
3) How much would it be in Japanese Yen to purchase
something that costs 20,000 US? Dollars?
Answer: 1,975,282 Yen
If get wrong, nice try but remember:
· 1 US Dollar/98.7641Yen = 20,000 U.S. Dollars/X Yen
Next screen
Slide 11
Scene 11
· Review

9. ·
· Next Slide
FIN534_10_11_Linda-1: Great work. When companies are
looking at doing business internationally exchange rate risk is
one area that needs to be considered. Your analysis will
provide a strong basis as TFC explores this area further.
We also learned that international expansion comes with risk
and timing can save or cost a company a lot of money. We also
learned that there are different types of exchange rate systems
and companies need to understand what each country is
following when doing business.
<the phone rings>
FIN534_10_11_Linda-2: Linda speaking. <pauses 1 second>
Hi! <pauses for 2 more seconds> Okay, Don. Thanks. We will
stay right here and wait for you to join us with Joe. See you in a
little bit.
FIN534_10_11_Linda-3: That was Don on the phone. He
said the Board reached a decision and he wanted to break the
news to us in person. I wonder what they decided?
Slide 12
Scene 12
· Don , Joe, Linda in conference room
· Strayer banner
Have students name appear using the input text function from
beginning of scenario.
FIN534_10_12_Don-1: Thanks for meeting with Joe and
myself on short notice. As you know, Joe has been meeting
with the board and presenting them all of your analyses

10. regarding the expansion. It is great that we have such a
dedicated board. They really have taken an interest in this
expansion project as the scope is unprecedented for TFC’s
standards.
<Joe interrupts>
FIN534_10_12_Joe-1: I am sorry, Don, but I can’t wait to tell
everyone the news. The Board APPROVED the expansion
project!!! They were very pleased with all of your hard work
and said it was due to your detailed analyses that they decided
to approve the project. Congratulations and great job everyone!
I am so proud of the work that you all did on the project. It was
a total team effort.
FIN534_10_12_Joe-2: There is even more good news!
The Board has decided to offer Linda a position as the Director
of Overall Operations which is a promotion to Vice-President in
TFC’s structure.
Our Board also wants us to commend Strayer University for
providing us with a top MBA student. And in doing so, the
board doesn’t want to lose you. At this time, TFC would like to
extend you an offer to join our management team as the
Manager of the “New” West Coast Operations, where you will
be reporting to Linda. With Linda’s new role, she will need
someone with your expertise to manage this expansion venture
and help make this project successful.
We sure hope you will accept!

11. FIN534_10_12_Joe-3: Congratulations on a job well done
FIN534_10_12_Don-2: Great work. You were the deciding
factor on moving forward with the project.
Slide 13
Scene 13
· Linda Summary slide
· Next Slide
FIN534_10_13_Linda-1: You did it! Great job. You did so
much analyzing, calculating, and decision making in such a
short amount of time. And in each instance your work was top
notch. During our time together, you analyzed financial
statements, performed ratio analysis and time value of money
situations, valued bonds, stock prices, and the costs of capital at
TFC. You also looked at capital budgeting, cash flow, financial
planning and agency conflicts. Furthermore, you analyzed
TFC’s dividend policy and exchange rate risks.
I would say that is a complete agenda for anyone.
FIN534_10_13_Linda-2: Again, congratulations on
performing at the highest level and being the main reason we
are moving forward with this expansion project. Without you,
this expansion probably would not have happened. To keep the
TFC tradition going, I think a workout is in order to celebrate
your accomplishments.
I’ll see you at the gym in a few minutes! (ha ha)
Slide 14
Scene 14
· Closing slide

12. Closing slide