Case ID: TB0049
Solution ID: 6991
Words: 925
Price $ 75

Nodal Logistics and Custo Brasil Case Solution

Case Solution

This case is based on a logistics company named Nodal. The case protagonist assessed that the company was prepared to move to the next step to Brazil. However, some legal constraints put him and the company in an unready state to pursue such growth opportunities. The case covers the historical context of the legal situation. The growth opportunity to Brazil was backed by an approval from the company’s board of directors in the US four years ago, to invest in an 800,000 square foot project which was to be industrial. The legal staff had received a call from the Brazil-based associate that the contract was flawed because the amount was not denominated in the Brazilian currency. The company had always operated with US dollars as the basic denominations for all contracts. However, the Brazilian law did not allow that. The denomination in Brazilian reais meant that the company be exposed to risks that emerged because of a long-term exposure to the currency. The time period ranging from five to twelve years. The protagonist John is faced with several strategies to reduce the risk faced by the company so that the deal can be progressed. 

Excel Calculations

Forward Contract

Put Option

Currency Clauses

Debt Financing

Value of Net Income  in 2009

Brazilian real-denominated loan

Interest Rate 

Per year Interest

Net Income After Interest- Paid to Bank

Sum of Net income in dollars 

 

 

Brazilian Reais Spot and Forward Quotes

Questions Covered

1. Why is Nodal Logistics interested in entering the Brazilian market and what special challenges do they face in regard to this move? 

2. What kind of currency risk does the Brazilian project pose to Nodal? 

3. What are the primary ways in which Nodal can try to manage this currency risk? 

4. What degree of exposure would Nodal face if they chose to remain uncovered and to what extend can currency risk management alleviate this exposure? 

5. What is your recommendation to John Penman? Other Teams: Prepare a one-pager on the following question: Assess Nodal’s currency risk exposure and their options to manage it.