Question 1
The report published by Blades indicated a small return of 7 percent within the year without any significant challenges in the United States. The move to increase operations into Thailand is positive since it would possibly boost revenue streams. One of the key benefits that the company could accrue from expansion into Thailand with regard to importation is a possible reduction in the cost of goods that the company sells. Statistics indicate that Thailand is currently experiencing a considerably weak economy underscored by diverse political and economic factors and hence, Blades could procure components in the region at significantly lower costs (DoingBusiness, 2019). In this regard, by setting up a subsidiary in Thailand, the company would experience considerably reduced production costs. Blades have run operations in the United States for an estimated three years and hence Ben Holt possesses a sufficient amount of information concerning the dynamics surrounding the establishment and target market. During its initial year of operation, the corporation indicated a net income amounting to $3.5 million, but there has been a historical decline in the share price from a high of $20 to a low of $12.
Venturing into a new country requires strategic planning to ensure that there is a seamless integration into the dynamics of the target nation and market. Two of the most popular approaches that corporations adopt when venturing into a new market include joint ventures and franchising (Tutor2u, 2019). As a start, Blades should consider undertaking a joint venture with the relevant corporations in Thailand that have specialized in the production of rollerblades. A primary benefit of undertaking a joint venture, in this case, is that the company would gain greater access to more reliable channels of distribution which is one of the key factors that determines the success of a company in a foreign country (Madura, 2018). The second benefit includes having an already established market to which the company can supply goods and services seamlessly. In essence, the company does not have to engage in rigorous marketing since the market has already been established. Franchising also embodies a beneficial approach that the company can adopt in its move to venture abroad. The procedure would entail one firm offering specialized sales or a type of service coupled with support assistance in the various aspects of operation (Madura, 2018). In addition to this, the target firm would also consider offering an initial investment in the established unit in return of some periodic fee and permitting some local entities to have ownership of as well undertake unit management.
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Question 2
The flow of funds between countries is essentially a construct of dynamic factors both from a microeconomic and macroeconomic perspective. A primary microeconomic factor that could have an impact on the flow of funds is the condition of trade policies. Specifically, factors that limit importation or that subsidizes exports have the effect of altering the relative commodity prices hence affecting the appeal of importing or exporting. The second key factor that is likely to affect the flow of funds is the factor endowments that incorporate elements such as capital, land, and labor (Trading, 2017). Capital resources comprise components such as production capacity and level of infrastructure. A country with a relatively high endowment of capital resources is likely to attract a higher amount of FDI as companies seek to capitalize on the relatively highly skilled and possibly cheap labor. In addition to this, a country that is characterized by a highly productive resource endowment, as well as a proliferation of a skilled workforce, is better suited to produce sophisticated electronics for export hence boosting the inflow of funds.
A key example in the United States in recent times is the NAFTA trade deal that was recently revised based on the directives of the president, who indicated that foreign nations are benefiting more from the agreement than the United States economy. The change in this agreement led to the migration of a large number of companies from South America into North America to guarantee that their market share in the region is maintained. Subsequently, the flow of funds between the involved nations declined considerably.
The foreign exchange market performs a critical role in the business world since the involved entities have to convert their proceeds abroad into local currency. As a CEO seeking to venture into an international market, it would be more prudent to seek financing in dollar form since the home currency is widely accepted in any nation. In addition to this, the value of the American dollar would ensure better terms of trade with the suppliers as well as other involved parties (Trading, 2017). Some of the possible sources of funding would be local companies who have also indicated an interest in the target nation.
Question 3
The foreign exchange market is a free industry in which individuals can transact exchanges in currency irrespective of their location. In essence, the value of a currency in the market is determined by the level of demand and supply of a given pair. Subsequently, higher demand for the currency of a given country translates to a rise in the value of the pair. In some instances, increased business from one business may lead to large fluctuations in the value of the currency which may not be an actual representation of the actual situation of the economy (Trading, 2017). In order to avoid the adverse effect of such currency fluctuations, also known as exchange rate risk, companies are advised to invest funds in currency ETFs that guarantee that the positions will recover for any possible losses that may be experienced in the exchange process. In essence, this approach is termed as hedging which is aimed at recovering potential currency losses. A currency futures contract is also an effective means of managing translation and transaction exposure since the parties to the contract agree to engage in a business deal at a determined and sure price without factoring in the fluctuation. For instance, an insurance company can opt for this approach when shipping goods from one county to another.
Question 4
One of the critical implications of having a fixed exchange rate is that importers and exporters will be exposed to more opportunities hence promoting international investment and trade. In essence, having a fixed exchange rate would guarantee that investors and traders are assured of a fixed price for their products irrespective of economic conditions such as inflation. However, in the instance of inflation which would affect the cost of goods and services in a given nation, the multinational would not benefit significantly due to the fixed exchange rate (Madura, 2018). In the second case study, one of the critical advantages of arbitrage is the fact that it effectively eliminates or considerably limits the risk level. In addition to this, the price of securities is maintained at a relatively steady level hence limiting fluctuations. The primary disadvantage of this approach is the fact that it is associated with a high number of transaction costs as well as taxes which effectively makes it difficult to benefit.
References
DoingBusiness. (2019). Ease of Doing Business rankings. Retrieved from < https://www.doingbusiness.org/en/rankings >
Madura, J. (2018). International Financial Management. Jeff Madura. The United States of America.
Trading. 212. (2017). Forex Trading for Beginners. Retrieved from < https://www.youtube.com/watch?v=z7538iNe2Pw >
Tutor2u. (2019). Methods of Entering International Markets. Retrieved from < https://www.youtube.com/watch?v=drK_S95gCJU >
