A manager needs to:
Understand how to monitor the foreign economic cycle. Paying attention to the political risks and how high or low the foreign exchange rates are so you can prepare for any additional costs for the business outside of the United States.
For a major industrialized country, the monitoring system would closely resemble that used in the United States with an addition of foreign exchange risk.
For a less developed country,
| Risk | Indicators |
|---|---|
| monetary policy | varies depending on individual countries |
| foreign exchange risk | divergence between PPP and actual exchange rate |
| capital control | country’s bond credit ratings and stock exchange prices |
| oil | know how dependent the country is on imported oil |
| commodity | commodity price |
| trading partner risk | know who the major trading partners are (including tourism) |
| war or rebellion | local press |
Being aware of how the central bank operates in the foreign country is key. How high or low interest rate are can affect how successful the business will be in this country. Reviewing past articles about the country can bring new information to the surface about other businesses in the country.
Some countries have a higher rate of dependence on imported oil and this leads to supply shocks that have a negative impact on specific countries. Taking a look at the overall price of oil in the nation can give a manager perspective on how much a certain country relies on oil.
The commodity risks for small countries is how much they rely on one product. With this, prices for that product can fluctuate to an expensive price. Understanding how a country’s economy changes can help a manager be prepare for any major complications with the product.
Having a country rely on another country for their exports can create a dependency with consequences such as the possibility that a recession occurs and decreases the intake of a product which leads to a decrease in the economy.
Exchange rates differ from country to country and understanding how to convert overseas income into a higher dollar than a lower dollar will be beneficial to the business. Since exchange rates are not typically correct, a manager needs to make sure that they do not rely on the probability of the exchange rate.
The financial status of countries can create a negative impact to businesses that are trying to make a profit. How much a certain currency is in a country can affect how much a manager makes once the dollar amount is converted. Also the amount of control a country can put on a business fluctuates in foreign countries and in most cases, they increase control on businesses.
War creates an uprising amount of issues in a foreign country. War can increase the chances of a recession and the price of taxes on businesses. A manager needs to be aware of a country’s political status before selling their products in the country.
Being aware of a country’s stability in the economy is important to know because a certain product might not thrive as much as another product will. Being able to sell products to other businesses is key and having more routes of income coming into the business will keep it thriving. If a vendor cannot make the product due to financial reasons, there are avenues that a manager can take to solve the problem. Such as buying off the vendor or find other stable vendors.
For Foreign countries, the monitoring system will need to be evaluated. Looking over how the government works and how high or low interest rates are is a good way to start. Having a grip on what the exchange rates are, the measure of commodity price risks, and the risks of investing in the country all help navigate a business in a foreign country.
Evaluating the risks for a specific country can prevent a business collapsing. Making sure that when money is borrowed we are aware of the consequences that may follow in that country. Preparing for a downturn in sales is key since the sales in foreign countries tend to decline. Having a plan for the possibility of a war breaking out can help a business navigate through the amount of losses that may occur.
Managers need to be aware that foreign countries call for a whole new monitoring plan than the one they have in the United States due to the risks that are presented in these countries.
Explan each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
Rates vary due to the change in currencies for specific countries. A currency will shift to another currency if need be.
The exchange rates do not move in specific currencies.
The supply and demand affect the value of the currency in a specific country.
Leads to financial issues when a currency is fluctuated negatively, the value of a dollar decreases.
The currency is dependent on the currency’s of other countries.
When governments put boundaries on businesses who want to change their currency into money.
Helps figure out the accurate price of currency that can shift from country to country.
Describe the characteristics of the following events briefly.
The president that came into office made the value of a peso one-tenth of a dollar from three pesos of a dollar. With this decrease in value, Americans were not making nearly as much money as they were before. The dollar amount converted in America was lower than businesses needed to thrive.
A company was dependent on the bank credit to succeed. The bank had to put control on smaller companies that they had given money to. With this, smaller businesses in Indonesia did not succeed since they were not given the credit that they needed to buy the materials they needed to create their product.
The majority of companies in South Asia were going bankrupt do to the decrease of the value for one dollar. This put many companies into the ground because they could not afford the money to pay off their debt.