Chapter 08 - The International Monetary System and Financial Forces
5. If your firm is generating considerable revenues in operations in a country that suddenly and
without warning imposes exchange controls that prohibit the purchase of foreign currency within
the country and the export of the currency, what are some of the issues you'll want to discuss
with your regional finance staff?
You have a problem with repatriation of profits generated in that currency and with recouping your
6. Your U.S. firm is about to sign a contract to supply services to a bank in Beijing, with a up-
-front payment agreement of 50%. Would you want this payment in U.S. dollars? Why or why
not?
If you get paid US dollars today you are out of the "exchange rate gain/loss" risk game. This is the
7. While the Federal Reserve has been slashing interest rates, the European Central bank is hold-
ing interest rates steady. Could this policy difference have influenced the relative strength of the
dollar against the euro? Why?
8. Your Boston-based company earned 54% of its profits from Germany and France. Given your
answer in question 7, are you happy today? Why?
9. Your Munich-based company earns 64% of its revenues from high precision auto component
exports to the U.S. You need to expand manufacturing capacity, and the U.S. market has great
growth potential for your product. Given your answer in question 7, where would you add capac-
ity, in Germany or the U.S.? Why?
You would add capacity in the USA. Key inputs like labor and land will continue to be more attractive in
10. Why should managers regularly monitor the BOP of the countries in which their business op-
erates?
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