International projects present multinational corporations with many complexities in organizing a profitable transaction structure.Foreign exchange risk is an underlying problem. Credit risk presents another challenge. Payment terms and the certainty of realizing them can be difficult points. Negotiations with foreign corporations and governments, and with agents and intermediaries, present additional challenges. An example of the demanding environment for global financial activities is presented in the case of “Avicular Controls and Pakistan Airlines”. It is found in Cases in International Finance on page 40.
Expectations
Review the case carefully and be prepared to respond to the following questions:
1. Estimate the cash flows in U.S. dollars/Pakistan rupees the possible forms of the transaction would yield. Consider exchange rates, payment terms, the agent’s fees and other factors.
2. Makran, the Pakistan agent, is offering potentially critical services. Would you engage Makran and on what basis in terms of fees or other conditions?
3. What position would you take if you were in charge of the negotiations for Avicular Controls? Would you change any points in he proposal? How could you maximize the return for the company and minimize the risk?
Consider and evaluate other alternatives for the financing of this transaction – equity/debt/U.S. dollar denomination/other currency.
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