Questions
9-1. The United Emirates, of which Dubai is a member, is one of the Gulf Cooperation Council
members. How does it compare with the other GCC countries in terms of total population and
the nonimmigrant population as a percentage of total population? How important do you think
migration and therefore capital remittances are for each of the countries in the GCC?
9-2. What forces are likely to have the greatest influence on Western Union’s business in the
future?
TEACHING TIPS: Carefully review the PowerPoint slides for Chapter Eight and select those
you find most useful for enhancing your lecture and class discussion. For additional visual
summaries of key chapter points, also review the figures, tables, and maps in the text.
Students can check currency prices by visiting the Web site http://finance.yahoo.com.
CLOSING CASE: Do Yuan to Buy Some Renminbi?
On November 30, 2015, the International Monetary Fund announced that the Chinese yuan, also
known as the renminbi (RMB or “people’s currency”), would finally join
the U.S. dollar, the euro, the British pound, and the yen in the basket of reserve currencies also
known as SDRs or Special Drawing Rights. The yuan is the official currency of China.
Yuan has been historically fixed and controlled by the Chinese government. As China becomes a
greater global exporter and economic powerhouse, critics are claiming that the currency is being
undervalued and manipulated to protect domestic markets. Domestic and international pressures
have forced the Chinese government to review the status of its currency. Given these pressures,
China took an historic step on July 21, 2005, and de-linked the yuan from its decade-old peg to
the U.S. dollar in favor of a currency basket.
As China moved closer to the yuan being accepted as a global currency in late 2015, it allowed
the yuan to appreciate against a basket of currencies by more than 30 percent, and by 10 percent
alone from mid-2014 to mid-2015.
Questions
9-3. Why is it important for the Chinese yuan to become a major world currency? What are the
risks for China?
9-4. What role do foreign banks like HSBC and electronic platforms like Thomson Reuters and
ICAP play in helping the yuan move closer to becoming a global currency?
9-5. Why is the yuan being used more widely in global business transactions? Do you think it
will ever replace the dollar or the euro? Why or why not?
ADDITIONAL EXERCISES: The Foreign-Exchange Market
Exercise 9.1. Many students will have had experience with foreign currency conversion.
Ask them to describe the differences they have encountered in rates quoted at the airport, in
hotels and banks, and on the street. Then ask students to describe their experiences using
credit cards and ATM cards in particular foreign countries. How were the transactions
reported on their statements? Were they charged processing fees? (LO: 3, Learning
Outcome: To describe how the foreign-exchange market works, AACSB: Reflective
Thinking.)
Exercise 9.2. Take copies of the most recent editions of The Wall Street Journal and the
Financial Times to class. Explain to students where to find foreign-exchange rates, forward
rates, cross rates, commodity prices, etc. Select the home countries of various students in
your class. Use the forward rates to engage the students in a discussion as to which
currencies appear to be stronger. Explore the possible underlying reasons for a given
currency’s strength or weakness. (LO: 1, Learning Outcome: To learn the fundamentals of
foreign exchange, AACSB: Analytical Skills.)
Exercise 9.3. More than 150 currencies exist today. Some countries share a common
currency (e.g., those that participate in the euro), while certain countries peg their currencies
to others (e.g., Chile’s currency is pegged to the U.S. dollar). Many nations, however,
maintain their own independent currencies. Ask students to debate the potential for
additional regional currencies such as the euro. If they support the concept, should those
currencies necessarily be tied to regional economic blocs? (LO: 2, Learning Outcome: To
identify the major characteristics of the foreign-exchange market and how governments
control the flow of currencies across national borders, AACSB: Communication Abilities.)
Exercise 9.4. Have the students assume the role of CFO of a mid-sized U.S. company that
exports to Europe. The company has received a contract to supply components to a
European manufacturer with an agreed-upon sales price of €4 million due in 90 days.
Should the CFO do anything to hedge against possible fluctuations in the dollar/euro
exchange rate? If so, what? If not, why not? (LO: 5, Learning Outcome: To understand
why companies deal in foreign exchange, AACSB: Analytical Skills.)
Exercise 9.5. Go to a trading Web site like www.forex-markets.com or an information site
like finance.yahoo.com/currency and demonstrate the charting, conversion calculators, and
other research and information tools available for foreign exchange. (LO: 1, Learning
Outcome: To learn the fundamentals of foreign exchange, AACSB: Use of Information
Technology.)