Posted: June 30th, 2022

How equilibrium is reached in a foreign exchange market

1. A firm has been operating successfully in a particular country though foreign investment. It is reviewing its strategy in that country. It has the following choices: i) expand through partnership, ii) expand by going alone without partner, or iii) withdraw from the country. Which strategy would you recommend and why?

2. In attempting to choose a country for investment, firm ABC decides, to use a matrix for country selection. It decides to look at the following factors: 1-  economics 2-political risk, 3- cost of labor, 3- tax structure, and 4- country similarity to home country. On the scale of 1 to 10 (1 being very unattractive and10 being very attractive) management has ranked each factor and has decided importance of each one (again 1 unimportant and 10 very important) for the company. Below is table showing management’s assessment. Company only chooses a location if its weighted average is 7 or higher. Should the company ABC select country 1 or country 2?

	Ranking Country 1	Ranking Country 2	Weight
Economic growth	8	6	9
Political Stability	8	4	7
Low Labor Cost	8	6	5
Attractive Tax structure	6	7	6
Similarity to home country	7	9	8

3. Explain why is it important for a firm to develop its competitive strategy (low cost or differentiation) before selecting location for its international operation.

4. Assignment help – Discuss how equilibrium is reached in a foreign exchange market if a country has balance of payment deficit in the case of fixed and floating (flexible) exchange rate system

5. What would happen to capital flow between two countries if the real interest rate (rate adjusted for inflation) between the two countries is not equal and why?

6. Consider a country that has high economic growth, low inflation, and strong intellectual property right. In other words the country is highly attractive. A U.S multinational that is operating there realizes that it does not have strong competitive position. What would be your recommendation to this multinational?

7. Firm XYZ has identified a major opportunity in country A for business activity. However, it is concern that the opportunity may slip away if they do not respond to this opportunity. After evaluating various choices the two possibilities emerge as strategically attractive: acquiring a business in that country or building the business ground up (Greenfield development). Which one do you recommend and why?

8. Assignment help – Discuss role of demand in Porter’s diamond.

9. Explain impact of international trade on international wage structure of low wage countries using factor price equalization theory.

10. Compare benefits and draw backs of full economic integration (Economic Union) compare to Customs Union.

11. In the context of Vernon’s product life cycle theory of trade and investment, explain why technology companies would eventually manufacture off-shore.

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