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International Financial Management
Name: Meshari Al-Thani
Assignment# 1
ID Number: 200801274
#3 Currency Effects
I agree that South Korea’s export problem is caused by the weak Japanese Yen. South
Korea and Japan are producing and exporting almost the same kind of products to the same
countries worldwide.
When Japanese Yen is weak, Japanese products become cheap;
importing countries will buy Japanese products instead of South Korean products.
#4 Exchange Rate Effects on Trade Balance
U.S. balance of trade will be smaller when the U.S. dollar weakens against all currencies.
When U.S. dollar depreciates, U.S. goods will be cheaper; all countries will import from U.S.
because the product is cheap. On the other hand, if U.S. dollar depreciates against some
currencies and appreciates against others, the U.S balance of trade will be not as small as when
the U.S. dollar depreciates against all currencies because US importers will just shift from one
foreign country to another.
#5 Impact on International Trade
a. International trade volume has increased because it became easier for countries to
conduct business with each other. With the help of IMF and the WTO, multinational
companies are protected by international laws; there is stability in exchange rates and
international payments, there is cooperation among countries on international
monetary issues and free trade is encouraged.
b. They will be negatively affected. With the reduction in international restrictions and
continuous increase in international trade, inefficient firms will be forced to improved
operations otherwise they will not be able to compete with other firms and thus forced
to shut down operations.
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#6 Government Restrictions
Government policies can ease or restrict international payments. It can restrict imports
by placing tariffs and quotas; it can place taxes on income from foreign securities to discourage
investors from buying them.
# 7 Effects of the Euro
European countries established a single currency called the EURO to facilitate and
encourage firms in the European Union to trade among each other.
A single currency
eliminates exchange rate risk. Thus, European firms will tend to transact more business with
their own members in the European Union and trade less with the U.S. firms, thus negatively
affecting the U.S. international trade.
#8 Inflation Effect on Trade
a. A relatively high home inflation rate decrease exports and increase imports, thus
increasing the current account deficit.
b. A negative current account is not necessarily harmful to a country. It may mean job
losses which is a negative thing but it can keep prices low of imported products because
of intense competition among foreign exporting countries.
#9 Demand for Exports
The primarily reasons for a strong demand for U.S. exports is the weakening U.S. dollar
and appreciating foreign currency of importing countries.
#10 Balance of Payments
a. The current account is composed of
1. The balance of trade
2. The net amount of payments of interest to foreign investors and from foreign
investments.
3. Payments from international tourism
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4. Private gifts and grants
b. The capital account is composed of all capital investments made between countries
including both direct foreign investment and purchase of securities with maturities
exceeding one year.
#11 International Investments
a. If U.S. dollar is weak, U.S. investors will be discouraged to invest in foreign securities,
but if U.S. dollar is expected to strengthen, they will be encouraged to invest in foreign
securities.
b. When U.S. interest rate is low, US- based MNCs will be encourage to invest in other
countries because they will earn more from abroad than in US.
#12 Exchange Rate Effects on Trade
a. US products become expensive when US dollar is strong, thus reducing exports and
increasing imports because US dollar is strong, making imported goods look cheaper.
This will enlarge the US balance of trade deficit.
b. If the currency is weak, demand for foreign goods (import) is reduced; it makes
imported goods expensive. On the other hand, a weak currency will make export goods
cheaper to other countries thus increasing export. The floating exchange rate will adjust
to reduce or eliminate any current account deficit.
c. International capital flows and other factors will cause home currency to stay strong
even though a current account deficit exists.
#13 Free Trade
a. For me the statement is true, government can use its power by manipulating exchange
rates to reduce or encourage foreign trade.
b. The capital account is composed of all capital investments made between countries
including both direct foreign investment and purchase of securities with maturities
exceeding one year.
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POINT/COUNTER-POINT:
Should Trade Restrictions be used to Influence Human Rights
Issues?
For me trade restrictions can be used to influence human rights issues. US government
can put embargo on countries that violate human rights by not buying products from these
countries, in that way that country will be forced to improve the working conditions of its
workers by passing a law that prohibits human rights violations otherwise firms in that country
will suffer loses.
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