A manager needs to:
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 |
The policies put into effect by country officials to monitor and ensure monetary and fiscal growth.
Dependence on other countries goods can be risky and volatile if a country is going through an internal crisis or a foreign crisis like war.
Countries who don’t have a diversified output of goods are enslaved by the few markets they do have output in. These countries economies can be very volatile.
The risk of another countries economy is taken on when you decide to enter trade with them. Their goods cost may be very roller coaster-esque.
These exchanges may not stay consistent which means these deals are super risky and must be monitored and researched carefully.
When a recession occurs in a foreign country certain trade will be limited and this can cause recession in other countries.
Wartime always causes a country to act in the present normally disregarding smart financial decisions. As well as that trade will most certainly decrease. It is important to keep a finger on the pulse of foreign country’s affairs.
Foreign cycles may not be the same as domestic business cycles so you must be tapped in to when booms and busts occur to not be caught in a bad position.
The system that monitors foreign affairs closely in order to keep business going well
The same as domestic contingency plans except it must take into account the fact that there may be multiple recessions going on at one time.
Foreign investments and trade are important in growing your business however you must understand complictaed political and social differences in each foreign market you decide to eneter in.
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.
the rate at which domestic currency is valued in foreign markets
a fixed exchange rate in order to to stabilize two countries currencies
when currency price is determined by the supply and demand of other countries relative to domestic supply and demand
a monetary policy enacted to devalue a currency’s value
when currency drops in value versus other currency’s values
restrictions enacted to limit or cut off the use of other countries currencies normally used to promote their own domestic currency
PPP is a rate that exchanges currencies on a relative scale to even everything out
Describe the characteristics of the following events briefly.
In 1994 Mexico’s peso got devalued heavy which led to a massive economic crisis in the country. Bill Clinton bailed them out in 1995 after the peso ’s decline started to hurt the American economy and devalue other currencies in Central and South America.
There was a very high loan rate in Indonesia. When the Asian financial crisis occurred the Indonesian dollar was heavily devalued. Many people could not pay back their loans. That was the domino that tipped to send Indonesia into a major financial crisis.
Governments started implementing currency restrictions which made trade between Asian countries difficult. The economy declined, and the dollar was not worth enough to pay back loans and other lines of credit.