Foreign Currency and Currency Valuations in International Business

Foreign Currency and Currency Valuations in International Business

Have you ever wondered what happens to a U.S. exporter or importer when the value of the U.S. dollar drops? Is it good for the exporter? or is it bad for the exporter? Is it bad for the importer?… think for a moment…

Welcome to Foreign Currency, Currency Exchanges, and Currency Valuations

Watch this video, take some notes.

Assignment Instructions and Requirements

Ready? Review Chapter 14 and after you watching this video, I’d like to hear your perspective regarding a real-world case involving How China is managing the value of its currency; then answer these questions:

What do you think about China’s currency manipulation? is it good or bad for us here in the U.S.? why or why not
If we lower the value of the U.S. dollar, what would be the implications for American exporters?
If we increase the value of the U.S. dollar, what would be the implications for American importers?
If the value of the U.S. dollar drops, what would be the implications for U.S. importers?
Be sure to specifically address and answer each question

How to submit this assignment

Create a video to answer the 4 questions above.

You are an International Business Consultant

Your computer camera must be on, the audience must be able to see you

Video length: Minimum time 2 minutes; Maximum time 3 minutes

Videos under 2 minutes will not receive credit for this assignment, your video presentation must be at least 2 minutes long

Options to create the video

MyCourses – The video can be done using the video selection in the MyCourses Dropbox. Be sure to plan out your presentation so it flows well to cover the required material within the time frame.
or

YouTube Video – create your own video and upload it to YouTube Unlisted Videos
YouTube will give you a link. Copy and paste the YouTube link to the dropbox

Write this message “This is my Mod 4 video assignment click on this link” .

** test the YouTube link, be sure that it works

**To use YouTube, you must utilize a Gmail account

How to upload an unlisted video to YouTube, click on the link below

FAQ about this assignment

Do I need to use PowerPoint? No, you don’t

Can I read from all my personal notes? When you are presenting to an audience, avoid reading from a script, it does not sound natural

Can I have some index cards with bullet points? Sure, you may use index cards with bullet points to help you guide your viewpoints

Do I need to sound professional ? Yes, of course, you have to sound confident, articulate, professional, and your tone must be assertive; remember you are speaking to a business audience.

Do I need to have good energy when I speak? Yes, of course, speak with a good level of energy, avoid sounding like you are tired and exhausted

ANSWER

Foreign Currency and Currency Valuations in International Business

How China is managing the Value of its Currency

China relies on export dependent economic system which is why their money supply policies vary from other methods in other nations. Two major means through which China manages their money supply is through printing currency and controlling forex trade. In China, individuals, banks and companies have to comply with the closed capital account strategy which means that money is not moved without restrictions in and out of the country except it complies with the country’s strict foreign exchange rules.

What do you think about China’s currency manipulation?

China is not laying fair in the game of global trade through currency manipulation which is affecting other countries. Currency manipulation is one of the ways through which a country can change the partners of trade in their favor where by the value of the nation’s currency is high thus changing the price of the exports and imports (Weber and Shaikh, 2021). China’s currency manipulation negatively influences the U.S dollar by loosely pegging the value of the currency. For instance, China devalued their currency through lowering the price of the exports and increased a competitive edge. This is because when the value of the currency is low, importing items is quite expensive and cheaper to export for Chinese companies. China does not focus on keeping its currency at a targeted and stable value through a host of measures mainly through selling and buying the U.S dollar bonds and controlling the outflow of the currency from its borders. For instance, when China buys up a lot of dollars, it makes the US currency expensive meaning thus making the Chinese currency weak.

If we lower the value of the U.S. dollar, what would be the implications for American exporters?

Lowering the U.S dollar increases the price competitiveness of US exporters. Cheaper exporters will result to a higher demand. Ideally, lowering the rate of the U.S dollar will weaken the currency thus stimulating exports and making the imports more expensive. This is because the U.S dollar can be exchange with lesser amount foreign currencies thus making exports less expensive. Ideally, the value of the currency affects the exchange rates which changes the prices of exports and imports. For a lower value currency, the exports will appear cheaper compared to other currencies.

If we increase the value of the U.S. dollar, what would be the implications for American importers?

When the value of the U.S dollar increases, the relative price of domestic services and goods increases while the price of the foreign products and services fall. This is because the exchange rate of the country has increased relative to the other country’s value thus affecting the price of exports and imports. The importers benefit from the increased value of the U.S dollar since the imports are cheaper. This is because a higher value of the U.S dollar translates to a dollar buying more of the foreign currency so that one can purchase more foreign products.

If the value of the U.S. dollar drops, what would be the implications for U.S. importers?

A lower dollar value decreases the price competitiveness of US imports thus affects the American importers. Ideally, a lower dollar will raise the price of the imported goods. For instance, a weak dollar will raise the cost of importing oil causing the prices of oil to rise. Therefore, when the value of dollar decreases the imports become more expensive thus negatively affecting the U.S importers.

References

Weber, I., & Shaikh, A. (2021). The US–China trade imbalance and the theory of free trade: debunking the currency manipulation argument. International Review of Applied Economics, 35(3-4), 432-455.