The Currency Rate as a Vital Determinant of International Business - Research Paper Example

International Business This research study has focused on evaluating certain global current event articles in accordance with currency trading and international business. Five articles have been evaluated in the study that focus on the implication of the currency exchange rate, decline in the currency value and the role of the International Monetary Fund and World Bank in determining the effectiveness of the currency in the international business. U.S. Investigates Currency Trades by Major Banks The news article reported by Ben Protess, Landon Thomas Jr. and Chad Bray reveals the recently emerged trend of the major banks in trading the national currency of the United States. A group of traders was found to be changing the price of the foreign currency by a considerable amount in the least regulated markets of the country. This activity created a disaster in the market by raising the value of the local currency in the global market. The other suspicious matter that was observed during the course was that the major global banks were being benefited in their investment schemes. The Attorney General of the United States, Eric H. Holder Jr. ordered for a strict investigation regarding the matter in order to find out the best possible strategy to resolve the problems that have arrived due to the trading of the currency. The team that was assigned for the investigation of the case focused on the records of the currency trading and the reaction of the market concerning the increase in the currency rate (Protess et al., 2013). The currency rate is a vital determinant of the international business. The value of the currency in the international business can be enumerated by the facts that the international currency reduces the transaction costs and assists in overcoming the barriers of the international business. In the context of the aforesaid event, it has been found that the major banks were involved in the violation of the currency in the US market. This led to a rise in the currency value and affected the international business strategy of the country. Dollar Declines as Reports Show Economy Slowing The article reveals that the US Dollar has gone through a decline as a consequence of the drop in the growth of the industrial sector and manufacturing process of the country. The demand for the US Dollar in the international market and the lack of gains in the stock prices led the national economy to a downfall and at times this kind of situation leads to financial crisis. It has been ascertained that the Japanese currency Yen was heading forward in the global market and transcending the US Dollar to a great fall in the value. As per the Bloomberg US Dollar Index, the currency rate had declined by 0.5% since the previous week’s estimation. On the other hand, the rate of Yen was observed to have declined by only 0.2%. Due to this decline of the currency rate, the national economy of the United States was facing huge problem in the international trade and commerce (Detrixhe, 2013). The currency exchange rate is one of the major determinants in the international business. The multinational companies strive hard to substantiate their resources in managing the trend of the international business due to the fluctuation in the exchange rate. If the currency exchange rate is of fixed nature then the MNCs can involve in the international trading without any risk for the near future. However, as per the article, the national economy has been affected owing to the rapid downfall of the currency rate. The risk involved with the fluctuation in the currency rate directly affects the country’s economy. IMF Chief Warns A US Default Could Spark Recession In the mentioned article, Christine Lagarde, head of the International Monetary Fund is observed to be warning the US government about the risk of another drastic crisis in the world. The shortage of funds in the US Treasury bill will lead the world economy to a severe crisis in the coming future. Christine Lagarde is suggesting that the US government would be able to raise its debt ceiling before it brings about critical consequences. The US government was given a deadline to submit its budget along with the rise in its debt limit. Nevertheless, the government failed to do so which also resulted in partial shutdown in the government sector along with the economic growth. The head of the World Bank also warned the US government that if the debt limit is not elevated then there will be rapid rise in the interest rates. Thus, this situation will result in a harmful event for the developing countries of the world and might to lead another disastrous crisis (BBC News, 2013). The debt limit if not raised properly then the bond markets of the country would be severely affected and much pressure will be created on the interest rates in the bank. A few of the countries such as Japan and China have been investing huge amounts in the US market. In such a situation, if the US faces shortage in its fund, these investing countries would lose their confidence and would take back the major portions of their holdings. The aforesaid event reveals that debt is a vital facet for carrying out international business. The IMF plays a special role in making the country aware of the risks associated with the business and the problems which may arise in the coming future. World Bank Defends Business Rankings in Latest Report In the mentioned article, it has been illuminated that the World Bank is going through a lot of changes in its structure of carrying out international business around the world since few days. It has been giving ranks for various countries keeping in consideration its running of business and paying the international tax in due time. These are the mandatory factors that the international business must consider. The World Bank has found an effective idea of giving ranks to the countries which will in return boost a country in running the international trade and raise the country’s economy as well. However, a few of the governments have opposed the system and said that it is focusing too much on the ‘cutting red tape for the businesses’ on the basis of the employee’s expenses (Reuters, 2013). They have also argued that the ranking process would discourage the developing countries rather than inspiring them to grow further. From the aforesaid article, it has been found that The World Bank had been looking after the effective run of the international business among the various countries. It has been developing several systems to encourage the developing as well as the developed countries to uplift their national economies by focusing on the development of the business trend. Despite the opposition by few countries such as China, it has been focusing on assisting the different nations to implement the best practices of the international business. This kind of approach has facilitating the nations to deal with uncertainties inherent in the execution of international business. Interest-Rate Swaps Narrow versus Treasuries in Hunt for Yield In the last few months, the US interest rates have been found to be yielding lower benefits rather than the US Treasuries who have been yielding higher amount of profits from the government debt. The difference between the interest rates and the US Treasuries rate has been recorded to be 10.25 basis points. The US experts have estimated that the lowering of the interest rates will be same for the next few years. The money managers have been grabbing the benefits of the lowered structure of the interest rates. The Bloomberg World Bond Indexes has recorded the debt around the world to be 5.7% and the loss for the US Treasuries to be 2.3%. This record has created an apprehensive situation for the government and the businessman as well (Goodman, 2013). There can raise a problem in terms of the economic growth of the country if the interest rate falls and due to it the debt towards the other countries rises creating a situation of crisis in the economy. The international business is impacted to a great extent by this kind scenario as well and it might lead the country to face a severe economic loss. A fall in the aspect of interest rates might make the investors disinterested towards keeping aside a significant proportion of their hard earned money in financial instruments for a considerable period of time. This in turn might severely affect the government from raising required revenues from public investors. Therefore, it can be affirmed that the international business and the currency trading can determine the economic growth and development of a country. References BBC News. (2013). IMF chief warns a US default could spark recession. Retrieved from http://www.bbc.co.uk/news/business-24515290 Detrixhe, J. (2013). Dollar declines as reports show economy slowing. Retrieved from http://www.bloomberg.com/news/2013-11-14/yen-biggest-loser-as-fed-to-boj-easy-policy-damps-haven-demand.html Goodman, W. (2013). Interest-rate swaps narrow versus treasuries in hunt for yield. Retrieved from http://www.bloomberg.com/news/2013-11-18/interest-rate-swap-level-least-against-u-s-treasuries-in-a-year.html Protess, B., Thomas Jr, L., & Bray, C. (2013). U.S. investigates currency trades by major banks. Retrieved from http://www.cnbc.com/id/101201053 Reuters. (2013). World Bank defends business rankings in latest report. Retrieved from http://www.reuters.com/article/2013/10/29/us-worldbank-business-idUSBRE99S00D20131029 Read More