CUNY Brooklyn College Financial Controlling Questions

‘Café Coimbra Internacional Lda.’ (CC) is the parent company of an international coffee growing and
trading group, registered in Coimbra, Portugal. Since going public in 2018 (CC’s corporate bonds
trade on Euronext Lisbon, the Portuguese stock exchange), the group managed to significantly
expand its cross-border activities.
As is usually the case, rapid corporate growth entails both opportunities and challenges.
Consequently, CC hires you as a consultant to provide substantiated advice on various legal, financial
management and reporting issues:
Legal issues
One of CC’s customers is ‘Kaffee Köln International GmbH’ (KK), registered in Cologne, Germany. KK
runs a coffee trading business and intends to resell the coffee beans (purchased from CC) to its
customers around the world, including the USA.
In February 2020, CC sold large quantities of coffee beans, produced in Ethiopia, to KK. The purchase
contract signed by CC and KK includes the following clause: “DAP Kaffee Köln International GmbH
(Incoterms 2010).” The contract does not say anything on the competent court or the applicable law.
In March 2020, it turns out that the coffee delivered under the contract had been infested with
bacteria so that it cannot be resold. Therefore, KK demands reimbursement of the purchase price
from CC.1
1 Note: Portugal and Germany are both member states of the European Union. Germany is also a
contracting state to the CISG, whilst Portugal is not.
Financial management issues
CC’s management has come to realize that international business involves many complexities it has
not really been dealing with so far. Accordingly, a top priority on the current agenda is to improve
the group’s international financial management, especially with a view to political risks that could be
significant when doing business on a global scale with multinational partners. Moreover, increased
volumes of international shipments have recently posed some challenges to CC’s import/ export
business.
In addition, particular treasury challenges arise in connection with the recent establishment of a new
subsidiary in Switzerland; the first entity within the CC group, which operates in a currency other
than the Euro. The recently appointed treasurer of CC’s new Swiss subsidiary, Mr. Gruyère,
approached you with the following problem:
The Swiss entity has to pay CAD 2 million in 90 days to a supplier. For it is CC’s group policy to
protect against currency fluctuations, Mr. Gruyére asks for assistance in selecting an appropriate
financial instrument for hedging. Mr. Gruyère has already prepared two alternative hedging strategy
suggestions (along with some additional information):
• – The current spot exchange rate is CHF 1.3441 /CAD.
• – The first hedging strategy would be to buy CAD 2 million forward at the quoted forward
rate of CHF 1.3750 /CAD.
• – The second hedging strategy would be to buy a call option for CAD 2 million which would
be available with a strike price of CHF 1.3900 /CAD at a price of CHF 2,000 for the option
• – Mr. Gruyère strongly believes that the prevailing spot rate in 90 days from now will be CHF
1.3700 /CAD.
Finally yet importantly, CC’s newly founded corporate investment department announced
that it would get back to you with some questions on how to assess cross-border investment
alternatives and arbitrage opportunities.
Controlling issues
Company growth and increased controlling requirements often times go hand in hand. The
CFO of the CC group has had his troubles so far with setting up a professional performance
measurement in accordance with value based controlling requirements. He sometimes
wishes he could just go back to managing the company just using primarily Revenue, EBT
and Return on Investment (ROI), as the group always used to handle it before “going public”
in 2018.
In line with its new corporate strategy “Fast Forward 2050”, CC group recently made a
number of acquisitions it now wants to manage closely using an integrated performance
measurement system. Is also wants to track market share more closely and focus intensively
on innovation and new digital technologies.
Regarding International Financial Management issues, Questions.
o • Explain what political risk is and provide examples. Outline at least four different
measures in a detailed way to cope with political risk for CC. Please use desk
research on industry and countries beyond the information given in the case study.
o • Concerning the request of Mr. Gruyère (CC Switzerland’s new treasurer), explain
which instrument you would choose under his assumptions presented and what
would be the difference compared to just waiting and acquiring the CAD 2 million
spot in 90 days? What would you tell Mr. Gruýere?
For scenario analysis, alternatively, assume that the prevailing spot rate in 90 days
from now will actually be CHF 1.4200 /CAD. How would that change your
assessment?
o • CC’s corporate investment department is able to realize an interest rate on
investments in USD of 1% and the interest rate for comparable investments in EUR is
3%. Suppose that the spot rate is EUR 0.7399 /USD and that the quoted one-year
forward rate by the bank is EUR 0.7455 /USD. CC’s investment board wants to know
the following:
o If covered interest rate holds, is there an arbitrage opportunity?
o If yes, how high is it if you were able to borrow USD one million at the above rates from a
US bank?
Please illustrate your decisions with graphs in addition to your calculation.
Regarding Corporate Controlling issues, Questions:
• Please develop the concept of a performance measurement system for CC, that is based on a
modern Business Intelligence (BI) software. The following questions need to answered:
1. Which KPIs would you suggest and how are theses KPIs defined. Please show all relevant
KPIs and the corresponding definitions on corporate level.
2. How would you consider the concepts of Value Based Management in this concept?
3. How can this performance measurement system be balanced and also take into account
forward looking KPIs to track innovation?
4. Are there different perspectives or categories of KPIs that need to be considered?
5. How would you integrate the different subsidiaries is this performance measurement
concept?
6. What would you suggest to embed and establish this newly developed performance
measurement system within the entire company and involve all employees?
7. What are the technical requirements for such a performance measurement system and
which Business Intelligence (BI) software would you suggest to implement this solution?
8. What are key success factors regarding the technical implementation?
9. Which procedural approach would you choose to communicate and implement the new
performance measurement system within CC?