230 Module 8 The International Monetary System and Financial Forces payment agreement of 50 percent. Do you want this payment in U.S. dollars? Why or why not? 7. While the Federal Reserve has been slashing interest rates, the European Central Bank is holding interest rates steady. Could this policy difference have influenced the relative strength of the dollar against the euro? Why or why not? 8. Your Boston-based company earned 54 percent of its profits from Germany and France. Given your answer in question 7, are you happy today? Why or why not? 9. Your Munich-based company earns 64 percent of its revenues from high-precision auto component exports to the United States. You need to expand manufacturing capacity, and the U.S. market has great growth potential for your product. Your raw materials could be sourced in either location relatively easily and with no cost advantage in either. Given your answer in question 7, where would you be most likely to add capacity, in Germany or the United States? Why? 10. Why should managers regularly monitor the balance of payments of the countries in which their business operates? CRITICAL THINKING QUESTIONS 1. Are people who argue today for a return to the gold system simply nostalgic or do they have a point? 2. Was the Bretton Woods system bound to fail? Why or why not? 3. You are on a business trip from Portugal to the United States for 90 days, and you have a per diem expense account of euro 400 per day, no receipts required. This per diem is advanced to you before the trip (euro 36,000). You deposit it into your checking account and use your Portuguese (euro) credit card to cover your costs while in the United States. After the first two weeks of your trip, the dollar weakens against the euro by 15 percent. What ethical dilemma might this currency fluctuation present for you? How will you handle it? 4. If all nations used the SDR, what might the impact be on business? 5. Your firm is generating considerable revenues in a country that suddenly imposes exchange controls prohibiting the purchase of foreign currency within the country and the export of currency. What are some of the issues you will want to discuss with your regional finance staff? 6. Your U.S. firm is about to sign a contract to supply services to a bank in Beijing, with an up-front RESEARCH TASK http://globalEDGE.msu.edu/ Use the globalEDGE website (http://globalEDGE.msu.edu/) to complete the following exercises: 1. Your company offered you an expatriate position and gave you two options to choose from. You may either move to Austria or Australia. You will receive the same salary regardless of which country you choose. A friend mentions to you that the OECD Statistics portal includes data on “comparative price levels.” Find the latest data for Australia and Austria and discuss how your purchasing power in one country will compare to the other. Which country is more advantageous? How does the OECD use concept of PPP to calculate the comparative price levels? 2. You are the finance manager of a company and currently your company has $100 million in cash that will not be needed for a few more weeks. You are thinking about arbitrage opportunities using Euro and GBP in order to put the cash reserves into use and hopefully earn more money for your company. You have to make a decision about details of your arbitrage with regard to which currency to buy in which order. Check exchange rates, find current rates for USD, Euro, and GBP, and share the details of your arbitrage plan with your CEO. Is it possible to find an arbitrage trade to generate some profits (assume you will have no trading costs)? If so, what should be the order of your transactions in order to make a profit from this arbitrage operation? Fisher effect (p. 219) fixed exchange rate (p. 211) floating exchange rates (p. 212) forward currency market (p. 218) forward rate (p. 218) fundamental approach (p. 220) gold standard (p. 210) international Fisher effect (p. 219) intervention currency (p. 217) Jamaica Agreement (p. 213) law of one price (p. 219) monetary policies (p. 219) par value (p. 211) purchasing power parity (PPP) (p. 219) random walk hypothesis (p. 220) reciprocal currency (p. 218) reserve (p. 211) special drawing rights (SDR) (p. 211) spot rate (p. 218) technical analysis (p. 220) Triffin paradox (p. 211) vehicle currency (p. 217)
Geringer_InternationalBusiness
To see the actual publication please follow the link above