Question

Consider some examples of successful global business.

Complete either an interview with a manager doing business internationally or an analysis of global business news (your choice).

Use this information to answer the following question:

How might you incorporate your previous learning on the supply and demand curve to understand how exchange rates and trade embargoes influence global business?

200 WORDS

Answer 1

Ans:-

This discussion is about the fertilizer import demand in India and the impact on demand from the exchange rate. Kailin is a fertilizer manufacturer based out of China and is a major exporter of fertilizers to India. The demand for the fertilizers is based on agro climatic conditions and also the subsidy provided by Indian government. The international trade comprising of import of fertilizers from China to India is denominated in US Dollars and hence is susceptible to changes in the exchange rate.

When the local currency of the China depreciates, usually the import parity price (IPP) of fertilizer decreases as the exporter get the same realization even for a reduced IPP because of currency depreciation. This would lead to an increase in demand in those countries where the commodity is consumed. On the other hand a depreciation of Indian rupee against US Dollars reduces the demand as the importer has to pay more for the goods.

In the event of a trade embargo, there is a condition of oversupply in those countries wherein the embargo is not present and hence the price decreases in those countries. However embargo can also remove few supply sources which would reduce supply and drive up the import parity price