Question

The Role of the FX Rate in Assessing Foreign Business Opportunity case

One paragraph answer

-Identify several perspectives that explain why the export sector remains so crucial to the United States and other developed economies.

-In 2009 U.S. households were not even buying a toaster when it wore out. Which economies that are major trading partners of the United States are presently in slowdowns? How long do you think that situation will last?

-Which companies are the U.S.'s leading exporters likely to be hurt by a strong US$?

Answer 1

- Exports are the goods and services produced in one country and purchased by residents of another country. It doesn't matter what the good or service is. It doesn't matter how it is sent. It can be shipped, sent by email, or carried in personal luggage on a plane. If it is produced domestically and sold to someone in a foreign country, it is an export. Exports are one component of international trade. The other component is imports. They are the goods and services bought by a country's residents that are produced in a foreign country. Combined, they make up a country's trade balance. When the country exports more than it imports, it has a trade surplus. When it imports more than it exports, it has a trade deficit.

Importance of export sector for developed nations like USA:

• Employment. Growth in exports can create employment.
• Economic growth. Exports are a component of aggregate demand (AD). Rising exports will help increase AD and cause higher economic growth. Growth in exports can also have a knock on effect to related industries.
• Current account deficit. The strength of exports has a large role in determining the current account deficit.

- In 2009 the US households were not even buying a toaster if it wore out which refers to the fall in aggregate demand in the market.A situation in which GDP growth slows but does not decline. For example, if GDP goes from 5% growth to 3% growth, an economy is experiencing a slowdown. Most analysts do not consider a slowdown to be a recession, but unemployment may rise and productivity may decline.Currently due to pandemic and the fall in economic activity most of the economies have slowed down.The major trading partners of USA that are in slowdown are China ,Canada ,Germany, United Kingdom and France .The central banks in many countries, including the UK,India, Australia, slashed interest rates. That should, in theory, make borrowing cheaper and encourage spending to boost the economy.Global markets have since recovered some ground as governments have intervened. But some analysts have warned that they could be volatile until fears of a second wave of the pandemic are eased.The economic slowdown is expected to last until a vaccine is found for the covid -19 virus plaguing the economies ,that have brought trade and service to a grinding halt.The slowdown will last till the demand is increased with increase in the economic activities in economies as they open up slowly.

- A strong currency makes U.S. exports and products more expensive to other countries, which might encourage them to switch suppliers. A weaker domestic currency stimulates exports and makes imports more expensive; conversely, a strong domestic currency hampers exports and makes imports cheaper.It also means that the value of overseas sales is reduced when it’s converted back into dollars would be less now.U.S exporters like Ford , KFC , Pizza hut,,Procter & Gamble, Johnson & johnson have been hit adversely by a strong US currency. Moreso because many countries and regions—including Europe, Japan and China have devalued their currencies, making their export prices more attractive to foreign buyers.