A manager needs to: Be able to monitor the business cycle in a foreign country, similarly how they would in 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 |
In many countries around the world monetary policy is determined by treasury officials. There are also some countries who use monetary policy as a political interest.
Sudden changes in the supply of a product in foreign countries. Like the book mentions, certain countries rely more on oil than others. The greater the dependency, the greater the harm to the country.
Small countries who are reliant on one or two products that they sell. Countries are at a greater risk when they rely on one market to make their main income.
Depending on the economic states of trading countries it could effect everyone involved. Don’t want to have just one country who you trade with.
Exchange rates can fluctuate with overseas profits translating to more or fewer dollars. This can affect the profitability of overseas trades.
No matter how fundamentally sound your company might be, foreign exchange crisis can wreck local businesses. Companies can be limited in their abilities to move money.
Political stability most be evaluated before making any sort of trade or purchases between oversea companies.
This is a strategy that a company uses when facing a recession in a foreign country. The recession strategy in a foreign country should be similar to a U.S. downturn. Finding what market to target during a recession is crucial.
This is an early warning system, that usually comes before contingency plans. The warning system varies from country to country, third world countries should be watched over more carefully. You should plan for a foreign exchange crisis in certain countries for example.
The foreign contingency plans should be similar to the U.S. contingency plans. There should be a little bit more planning involved around exchange rates and capital flow risks. Contingency plans should be thought out in the early stages of when working with foreign policies.
The economic fluctuations vary from country to country, so every monitoring system and contingency plan might be a little different from one another. Having certain facilities on the coasts might be most beneficial, like producton facilities.
Explain 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.
When one country’s currency rate varies when exchanged for another.
This is when a currency regime is tied to another one, most common example of this is USD and EUR.
When a country’s currency is set by a foreign exchange market and not a government
Downward adjustment of a country’s currency.
When a currency falls in value compared to other countries.
Forms of control that are imposed by a government on the purchase or sale of foreign countries residents.
Economic theory that compares different currencies of different countries through a specific approach.
Describe the characteristics of the following events briefly.
When the Mexican peso had a sudden devaluation against the U.S. dollar in 1994. This cost surrounding countries to experience a downfall in their currencies as well.
Back in 1998 people of in Indonesia lost their savings and the stores were looted, this resulted in people hoarding to stay safe.
This was a financial crisis that started in Thailand and ended up spreading across East Asia. This caused recessions for some of the countries impacted by the financial crisis.