Post on 28-Dec-2015

212 views

Category:

## Documents

Embed Size (px)

TRANSCRIPT

• Chapter FourteenGlobalization

• Exchange RatesH.J. Heinzs annual report: We were hurt by unexpected exchange rate changes. What does this mean?Suppose the price elasticity of demand for catsup is 2.5.Suppose that Heinz sells catsup in the U.S. and U.K.

• Exchange RatesThe exchange rate of pounds to dollars is .6. It takes .6 pounds to buy \$1; or it takes \$1.6 to buy 1 pound.

• Exchange RatesNow, what occurs if the exchange rate changes to \$1.4 to 1 pound?Without anything else changing, the price of catsup in the U.K. rises. If the price was \$2 per bottle in the U.S., it would be .6 x 2 = 1.2 pounds in the U.K.

• Exchange RatesAt the new exchange rate, the \$2 in the U.S. would be 1/1.4 x 2 = 1.44 pounds.Thus, the price has risen by .24 pounds without any changes on the part of Heinz.

CountryU.S. \$equiv.Currency per U.S. \$Britain (pound)1.6774.5961Germany(euro).79361.26Japan (yen).0084119Turkey (lira).0000116925.290

• Reading the Exchange Rate TablesOn this date, the U.K. pound was selling for \$1.67. The same day, the U.S. dollar was selling for .59 pounds.If you know the price in U.S. dollars of a currency, you can find the price of the U.S. dollar in that currency by taking the reciprocal; 1.67 = 1/.59

• Types of CountriesLess-developed countries (LDCs) have per-capita incomes of less than \$610, and middle incomes of \$611-\$7619.High incomes exceed \$7620.LDCs are often called emerging markets

• Industrial Nations: % Change in RGDP% Change RGCP

• U.S. and LDCs: % Change RGDP% Change RGDP

• Lets GlobalizeWhat does this mean?Selling our product in other countries.Locating in other countries.Purchasing products or supplies from firms located in other countries.What is difference between global and multi-domestic?

• Functioning in a Global Economy What does this mean?It means that it is necessary to be concerned with the rest of the world -- with exchange rates in particular.How are exchange rates determined?

• Functioning in a Global Economy\$/EuroQuantity of eurosD1

• Functioning in a Global Economy\$/EuroQuantity of eurosD1S

• Functioning in a Global Economy\$/EuroQuantity of eurosD1SD2

• Exchange Rate Systems: Fixed vs. FlexibleWhat does this mean?

• Exchange Rate Systems: Fixed vs. Flexible\$/EuroQuantity of eurosD1SD2Fixed Exchangerate

• Exchange Rate Systems: Fixed vs. Flexible\$/EuroQuantity of eurosD1SD2Fixed Exchangerate

• Exchange Rate Systems: Fixed vs. FlexibleIf rates are fixed, then what are they fixed to? Gold standard.The governments decision.

• Exchange Rate SystemsThe exchange rate between the U.S. dollar and the Chinese currency, RMB, is fixed by the Chinese government at8.3RMB = \$1 where RMB represents the Chinese currency RMB = ____dollars?

• Exchange Rate SystemsD1SD2Fixed Exchangerate\$/YQuantity of RMB1/8.31/7

• Too Low of a ValueSD2Fixed Exchangerate\$/YQuantity of RMB1/8.31/7

• Too High of a ValueSFixed Exchangerate\$/YQuantity of RMB1/8.31/9D1

• DemandConsider the demand for Motorola cellular phones in the U.S:The demand in each nation is converted to U.S. dollars.What does this mean?If the RMB/\$ rate changes to 10RMB/\$1 from the 8RMB/\$1, then the demand for cellular phones (converted to dollars) will decline.

• Functioning in a Global EconomyPrice in \$Quantity of cellular phonesSD1D2

• SupplyConsider the supply of Motorola Cellular phones in the U.S.The supply depends on the costs of producing phones in China. What does this mean?If the RMB/\$ rate changes to 10RMB/\$1 from the 8RMB/\$1, then the costs to Motorola (converted to dollars) will decline.

• DEMANDSRATCPriceQuantityCosts declineMRSRAC

• Functioning in a Global EconomyPrice in \$Quantity of cellular phonesSDS2

Recommended