De La Salle University
Ramon V. del Rosario
College of Business
Case Analysis 2
In Partial Fulfillment of the
Course Requirements for
Prescriptive Analytics (LBOMGTS)
1st Term, AY 2023-2024
Submitted by:
Submitted to:
Submitted on:
November 18, 2023
Background
Jake Nguyen, the manager of Asian foreign investment for Grant Hill Associates, ignored the
rumored warning of Japan’s downfall. With this being said, Jake Nguyen even increased the stakes of
Grant Hill Associates in Japan from $2.5 million to $15 million and is now facing the consequences of his
actions. Previously, one dollar was equal to approximately 80 yen; nevertheless, now one dollar is
equivalent to 125 yen. It should be mentioned that the value of the yen has decreased in foreign
exchange. Jake Nguyen is having a problem on how he could transfer the stake investments without
losing any yen. Grant Hill, the president of Grant Hill Associates, then learned about this issue and
summoned Jake Nguyen and ordered him to settle the investments by removing the investments from
Malaysia, Indonesia, and Japan. With Jake Nguyen's experiences in investing it made him realize that
getting money out of the market is as important as getting money out of a foreign market. As for the bank
partner of Grant Hill Associates, the transaction fee for converting one currency to another varies. The
main issue is that the governments in East Asia have implemented a certain limit that can only be
exchanged. The main objective is to reduce stake investments in Japan, Indonesia, and Malaysia to
reduce the downfall of Grant Hill Associates. Grant Hill Associates' cash holdings of 10.5 billion
Indonesian rupiahs and 28 million Malaysian ringgits, along with the holdings in Japan, make it unsure
and unclear on how to convert them back into dollars.
Jake is looking for the most economical way to convert. certain assets in US dollars. On his
business's webpage, he consistently may discover live conversion rates for the majority of currencies in
the global. (See table 1)
Table 1: Currency Exchange Rates
In table 2, According to the table, one Japanese yen is equivalent to $1.08 in US currency.
Through a few phone calls, he finds out The fraction of the currency that represents the transaction
charges being converted), his business has to cover significant foreign exchange costs during these
crucial periods.
Table 2: Transaction Cost (Percent)
Table 3 illustrates Jake's observation that the transaction cost of exchanging one currency for
another is equal to that of a reverse conversion. At last, Jake discovers how much local currency his
company can exchange for other currencies in Malaysia, Indonesia, and Japan—expressed as the
present value of thousands of dollars.
Table 3: Transaction limits in equivalent of 1,000 dollars
Jake Nguyen wants to identify the best method and most cost-effective to convert those stake
investments back to dollars. On the Grant Hill Associates website, he was able to find on-the-minute
exchange rates. Jake Nguyen then realized the large penalty (transaction cost) of having a large
currency transaction at a crucial time. Jake points out that there is a transaction cost associated with
exchanging one currency for another, just like in a reverse conversion. In conclusion, Jake learns how
much local currency his company can exchange for other currencies in Malaysia, Indonesia, and Japan,
up to a maximum amount.
Statement of the Problem
Throughout this case, the issue is a financial crisis brought on by the collapse of the Japanese
economy and the ensuing effects on the markets throughout East Asia. The abrupt fall of the yen and the
possible losses from the company's increasing investments in the Japanese market present serious
obstacles for Grant Hill Associates' manager of Asian foreign investment, Jake Nguyen.
●
One issue is that Jake Nguyen disregarded Wall Street's warnings about an imminent collapse
of the Japanese economy. The whispers of warning were loudly spoken by knowledgeable
stockbrokers and investment bankers, but Jake ignored them. Instead of taking a more measured
approach, he decided to greatly increase Grant Hill Associates' presence in the Japanese market.
●
Another key factor escalating the situation for Jake Nguyen and Grant Hill Associates is the
dramatic yen depreciation, which fell from 80 yen to 125 yen per dollar. The company's
investments in the Japanese market have seen a significant decline in value in US dollars due to
this sudden and significant depreciation.
●
Apart from the aftermath of the Japanese financial crisis, Grant Hill Associates is currently facing
increased concerns about the company's cash holdings in Indonesia and Malaysia. The
company's president, Grant Hill, emphasizes how critical it is to remove these cash assets from
these Southeast Asian markets as soon as possible in order to avert future economic downturns.
Solution
To deal with the effects of the Japanese financial crisis and lessen Grant Hill Associates' possible
losses, Jake Nguyen needs to come up with a thorough damage control approach.
A. Jake should perform an extensive analysis to determine the most economical way to convert the
company's holdings in yen, Indonesian rupiahs, and Malaysian ringgits back into U.S. dollars
given the intricacy of currency conversion and the various transaction fees imposed by banking
partners. This could entail negotiating advantageous rates with banking partners or timing
conversions strategically.
B. Given the rigorous regulations that East Asian governments have placed on currency exchanges,
Jake needs to have open channels of contact with the appropriate authorities in order to properly
manage these constraints. Developing connections and looking for collaboration can help
transactions go more smoothly and ensure that regulations are followed.
C. Additionally, Jake needs to interact with the banking partners to work out advantageous
conditions and transaction fees for currency exchange. The cost-effectiveness of the conversion
procedure can be greatly impacted by carefully choosing the partners and learning about their
pricing schedules.
To summarize, the proposed solution incorporates a multifaceted strategy that includes the
prompt liquidation of Japanese investments, strategic currency conversion, a swift withdrawal of cash
positions from Indonesia and Malaysia, and proactive communication with banking partners and
regulatory bodies. Through sensible management through these phases, Jake can aim to reduce the
crisis's financial toll and set up Grant Hill Associates for a more stable financial future.
Question A
Formulate Jake’s problem as a minimum-cost flow problem, and draw the network for his problem.
Identify the supply and demand nodes for the network.
Linear Programming Model:
Actual Network Model:
Simplified Network Model:
Explanation: The image above shows the minimum-cost flow model as well as the network
model to resolve the situation in the given word problem. It is decided to simplify the network
model to lessen the complexity. Basically, Yen, Rupiah, and Ringgit are actually the supply
nodes and there is only one demand node, the US$ (US Dollar) node. These nodes should
initially be converted to US Dollars. Other nodes are already considered transshipment nodes.
Question B
Which currency transactions must Jake perform to convert the investments from yens, rupiahs, and
ringgits into U.S. dollars to ensure that Grant Hill Associates has the maximum dollar amount after all
transactions have occurred? How much money does Jake have to invest in U.S. bonds?
Linear Programming Model:
Excel Solver:
Explanation: Jake should convert an amount equal to $2 million from Rupiah to US$, Canadian
$ and Peso each, $1 million from Rupiah to Euro and $80,000 from Rupiah to Pound. Jake
should convert $1.1 million from Ringgit to US$, $2.5 million from Ringgit to Euro, and $1 million
from Ringgit to pound and Peso each. Finally, Jake should convert $2.2 million from Canadian $
to US$, $5.5 million from Euro to US$, $3.08 million from Pound to US$, $2.8 million from Peso
to US$. Suppose Jake pays for the total transaction cost of $83,380 directly from his American
bank accounts then he will have $16,880,000 dollars to invest in the US.
Question C
The World Trade Organization forbids transaction limits because they promote protectionism. If no
transaction limits exist, what method should Jake use to convert the Asian holdings from the respective
currencies into dollars?
Linear Programming Model:
Excel Solver:
Explanation: Jake should convert the entire holding in Japan from Yen to Pound and then into
US$, moreover, the entire holding in Indonesia should be converted from Rupiah to Canadian $
and then into US$, and finally the entire holding in Malaysia should be converted from Ringgit to
Euro and then into US$. Without the capacity limits the transaction costs are reduced to 67,480.
Question D
In response to the World Trade Organization’s mandate forbidding transaction limits, the Indonesian
government introduces a new tax to protect its currency that leads to a 500 percent increase in
transaction costs for transactions of rupiahs. Given these new transaction costs but no transaction limits,
what currency transactions should Jake perform to convert the Asian holdings from the respective
currencies into dollars?
Linear Programming Model:
Excel Solver:
Explanation: In response to the World Trade Organization’s mandate forbidding transaction
limits, the Indonesian government introduces a new tax that leads to an increase of transaction
costs for transportation of rupiah by 500 percent to protect their currency. The optimal routing for
the money remains the same but the total transaction costs are now increased to $92,680.
Question E
Jake realizes that his analysis is incomplete because he has not included all aspects that might influence
his planned currency exchanges. Describe other factors that Jake should examine before he makes his
final decision.
Jake should always be more mindful of the currency rates before completing any transactions in
this case because they are unstable and could vary significantly. The information at hand
indicates that European currencies, including the Euro and the British Pound, are more stable
than their Asian counterparts, particularly the Yen, which is predicted to decline in the word
problem. Jake should attempt to invest in European markets as opposed to US bonds, it is
advised. This is so that businesses won't have to worry too much if there is another currency
crash in one market because some of their assets are invested in stable currency markets and
aren't entirely in danger.