Widget Manufacturing Case study Example | Topics and Well Written Essays - 500 words

Widget Manufacturing - Case Study Example rom investments in Mexico, but were affected by the global recession which reduced the Mexico GDP from an average of 2.3 percent to a – 6.5 percent. Despite the I.M assurance that the firm will have alternative methods to reduce the FX in expenses such as payroll, purchasing, and lease costs, there are major risks involved, which Arnold has to address. After investing in Mexico, the widget company will experience three types of currency volatility risks, which include transaction exposure, translation exposure and economic exposure. The three major risks are not covered in the IM assurance and hence Arnold’s concerns are logical and valid. In prior to investing, the Widget Manufacturing capital management should analyze the capital investments involved in a larger perspective. The main aim of the capital management team is to ensure that the value of the firm increases gradually and to uphold profitability. Therefore, Arnold should consider several other factors other than the currency volatility (FX rates); the factors to be considered include, but not limited to, Support capital, liquefaction value, account receivables and payables, and general risks. Support capital is the supplementary resources that are required to enhance productivity of the mainstream capital; they include infrastructure, labor, management etc. Before investing, Arnold should consider the possibility, whether Widget Manufacturing will find the desired workers, management, and sufficient infrastructure network to support the proposed venture. Similarly, he should consider the liquefaction/resale value of the investment, following the thriving un stable economy at the time of decision-making; it is highly likely that the capital will depreciate after investment. The risk calls for an indepth analysis of Mexico market to ensure that the business withstands the competition and attracts a reasonable liquefaction value in case of collapse. In addition, account payable and account receivables