A manager needs to: The manager and the company need to watch not only the United state but also the countries that are in while working in the global market. They need to watch for business cycles to assess if it is the right move to continue selling in recession overseas. Countries are correlating more and more in terms of up and down but it isn’t perfect, this is another thing to realize when studying global economy. Need to look at the federal reserve policy, or the central banks in the locastions they are using in the global market.
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 |
Monetary policy serves short run political interests in many countries, but countries also have different opinions and attitudes about the policy. Depending on how solid the inflation vs the cash flow is in the economy has lots to do with the view of the policy and the federal reserves and banks. Politicians use the interest and inflation to decide to try and open up more jobs vs more cash flow when running, based on the economy in their country and allied countries of their market.
Supply shock has to do with the dependency that a country has for something, oil and the United States is a good example, this is why prices can go higher if more places demqnd it, or one place demands more of it in a short period or term they used to. Supply and demand is essentially what runs shocks throughout the global economy, and the price spikes that take place throughout the market.
Many countries depend on one product, which makes it easier for the supplier to up the prices because their demand is higher, this creates risk and swing for countries buying and selling to gain access or to supply those places. This is a risky game for both sides, the demand may be too high and a price change will not hold up, or a country may not have enough supply and lose out on large sales. Boom or bust cycles occur with small countries who depend on minimal products outside of their own production.
A country that has a major trading partner is put at risk constantly because of recession, it happens to every country, but it makes trading hard when a country can’t spend or offer the same amount as a boom.
Exchange rate is not perfect, fluctuations between losing dollars and gaining dollars is a risk and happens to countries all of the time. Underlying profitability is changed because of the rate of exchange, which again is not perfect every time.
Foreign risk has to do with controls, if they allow you to sell in their ciountry or if they will buy. This also has to do with loss of credit, can they end up paying you back or do they find themsleves in mass amounts of debt. This ultimately risks a recession in a country and its target market, which makes it harder to sell and harder to find buyers due to their lack of demand. This can destroy local businesses, and countries that can’t move money around in the global market are imposed during crisis.
War is no good, production of things stop, less things to sell, because of seizure of assets, and factories are targeted, which means loss on those too. Recession and depression usually happen during wars, even if you are the invader. Political stability must be assessed when looking at a larger global investment in the foreign market.
Business strategy has to be assessed in all places, are you selling locally or to the global market, or are you manufacturing overseas. Looking at recession in other places should be treated as a downturn happening in your own country, must look at your plans for downturn depending on your situation.
Early warning systems need to be intact ion case of a foregin country in recession, or even your home country in recession. Most countries that are developed have a system similar to the U.S with the added factors of the other countries they use in the market. For less developed places they pose the risk of war, foreign exchange risks and commodity risk, while also finding risk in trading partners and political upheaval.
Contingency plans for foreign recession should include common elements of a domestic plan, plus additional plans for the exchange rates and capital flow risks as well. Plans for alternative supply chains should also be present, while also including utility service.
Business is risky in the global market, having an early warning system, a contingency plan, and noting all of the risks that foreign markets may impose is the way to keep the business afloat, Economic risks must be planned for, or else you fear bankruptcy or closing shops.
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.
This is the rate at one currency is processed to give a relativly even amount to another countries currency. Banks are often the ones to help people do this.
A fixed exchnage rate, where it is tied to another country, like pesos to USD, or euros to USD.
Based on supply and demand, price that is exchaning currency is up for change, relative to other countries.
Decision that makes the value of currency drop, this is based on the opne free market depending on supply and demand, and the other cause is monetary policy, which essentially drops the value of the currency
The loss of vlaue in a countries currency, based on the increase of imports and this has to do with the balance between imports and exports.
This is where the governement has control and sets restrictions on the movement of money, typically out of the country.
Exchange rate at which different countries can purchase the same amount of product in two different countries, so $4 dollars for a soda and 1 peso for a soda means a, 4:1 exchange ratio.
Describe the characteristics of the following events briefly.
The president of Mexico let the value of the peso drop for 1/3 of a U.S dollar to 1/10 of a U.S dollar, created a loss in money when exchanging to American dollars.
Industries borrowed too much money, Large companies borrowed from international banks, the smaller companies borrowed from local banks, which borrowed from the internationals too, they were unable to pay back the debt. This meant that small businesses could not get the funds asked for, this meant small manufacturing crashed and they focused on getting the Accounts Payable out of the weeds before growth in small business again.
Small business seemed fine, until the value of their currency had dropped below the dollar, which meant that the debt they had was substantial to no fault of their own. This meant bankruptcy, and closures of business that seemed to be fundamentally sound before. Selling only to local markets can put you at risk for bankruptcy because of the outliers that occur in foreign market and the global economy.