MINI-CASE: THE VENEZUELAN BOLIVAR BLACK MARKET
Hyunwoo Jeong, Seunghee Yang, Jorge Eduardo Corts
1. Why does a country like Venezuela impose capital controls?
2. In the case of Venezuela, what is the difference between the gray market and the
black market?
3. Create a financial analysis of Santiago’s choices and use it to recommend a solution
to his problem.
Answer:
1. Why does a country like Venezuela impose capital controls?
Because capital controls allow a country like Venezuela to maintain a fixed rate of
exchange for its currency without compromising its holdings of strong currency or foreign
currency reserves. In this way the countries that applying capital controls can controlling
the level and flow of capital flowing in and out of the country. Capital controls are utilized
to forbid massive capital outflows when there political chaos or crises. The main problem
facing the country that impose capital controls is that this control comes at a substantial
cost because many investors not be willing to invest the same level of funding in the
country.
2. In the case of Venezuela, what is the difference between the gray market and the
black market?
On the one hand, the black market is the trading of currency through not recognized
organizations or without a license, which in these countries is illegal.
On the other hand, the gray market is the use of a legal process to achieve what is
