None of our client companies operate in a foreign country. They don’t
sell into a foreign market. Nor do they manufacture in a foreign market.
So we will use a hypothetical manufacturing company, Daewoo, for the
assignment.
Daewoo is an American automobile manufacturing company that makes
cars in the U.S. and sells in the U.K. market. Assume that a majority of
its revenue comes from the U.K. market. Read the attached article, and
answer the following questions.
- Monetary Policy: Did the Bank of England increase or decrease
interest rates? What is the purpose of the policy move, and what is its
risk? How would it impact Daewoo’s profits? What should the company
do?
- Foreign Exchange Risk: Is the British Pound increasing or decreasing
in value against the U.S. Dollar? What would that mean for Daewoo’s
profits? What should the company do?
What if, instead, Daewoo made cars in the U.K. to sell in the U.S.
market? How would your answer above change? Elaborate.
- The bank of England increased its interest rates by 2.2%. The
purpose of this policy what’s the have the inflation peak sooner at a
much lower rate. The risk for this policy is that if they do not achieve
their goal, then it could possibly peak at a much worse rate. And it
would impact Daewoo’s Profits significantly because the higher interest
rate means they lose more money during the exchange.
- The British pound is decreasing in value against the US dollar, this
means that the companies profit margin is lower then it should be. what
the company could do is to make more revenue for the cost of inflation,
As well as increasing the price of importing And exporting its products
from the UK.
- If the company decided to make the cars in the UK, and sell them in
the United States, then the answers would be very similar considering
this is an exchange between both Countries were both of their Foreign
policies apply to this transaction.