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International Business Questions - Assignment Example

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The author answers the questions about fixed exchange rates, the theory of competitive advantage, strategic positioning, control over foreign operations, mutually beneficial partnership, Licensing Agreement, Letter of Credit, and the pros and cons of in house manufacturing and outsourcing. …
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International Business Questions
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Download file to see previous pages In the given situation, the best option would be to wait till the month of December and then convert ¥400,000 at the spot rate at that time, which can be assumed as $1 = ¥100. In this particular case, one would have $4,000 in the middle of December. In this particular case, one would have $4,000 in the middle of December. If the current 180-day forward rate is lesser than 100¥/$, then, it might be preferable to have a forward contract, because it would lock the rate at a better level than before, as well as reduce the risk. However, if the rate is more than ¥100/$, then whether to wait and watch what the spot does or lock the forward rate, would entirely depend on the person’s risk aversion. A third possibility might also be considered. One could borrow money from any bank, which can be paid back by the ¥400,000, and could receive (400,000/1.03 = ¥388,350 borrowed), and then convert it at present time to US Dollar (388,350/130 = $2,987). This amount can be invested in US Dollars in a US account. But, in order to make it favorable, one would need to make a lot of interest (4,000 - 2,987 = $1,013) that would turn out to be at an annual rate of 51% ((1,013/4000) * 2). If these interest rates can be locked, then it would also reduce the exchange rate risk. However, what should be done is entirely dependent on the available interest rates, the available forward rates, the amount of risk the person willing to take, and also how certain the person is about the spot rate in the month of December would be ¥100 = $1. (Ch. 09 – The Foreign Exchange Market, n.d.)
Fixed exchange rates are based on arguments regarding speculation, discipline, uncertainty, along with the lack of connection in between exchange rates and trade balance. The need to maintain the fixed exchange rate parity in terms of monetary regulation ensures that money supplies at inflationary rates are not expanded by the governments.  ...Download file to see next pagesRead More
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