Question

One standard that corporations use to evaluate their performance against their competitors is the set of rankings developed by Fortune magazine. These include the Fortune 500, the 100 Best Companies to Work For, and other lists. The public also uses these rankings to decide to what companies they should give their business.

Respond to the following in a minimum of 175 words:

• Discuss who gains and who loses when an economy opens for trade.
• Explain what determines exchange rates in the short and long run.

Answer 1

When economy opens up for the trade, then there are different parties who gain or lose. The first party that gains is the customers that get superior quality products and services at competitive prices. As a result, consumer surplus increases and market becomes more efficient. The second party getting gain is the exporting companies who want to trade in overseas market. It only happens when the economy gets open for the trade. As a result, the local MNCs gain revenues as they sell their products and service at a competitive prices. The third party that gains is the labor force that gets the opportunity to ply their trade in overseas market and work. It  can be observed that many Mexican people work in the USA and send their earning back tot he country that fuels the Mexican economy. The party that loses is the inefficient local producers who are in nascent stage and or not willing to adapt to the changing scenario. These producers will not be able to compete and either they will be forced to change or will be closed down.

In the short run, it is the price level, interest rates and trade deficits and economic developments that change the value of currency w.r.t. the other foreign currency. It changes the exchange rate in the short run. In the short run, rise in price, increase in trade deficit, poor economic growth and lower interest rates, will cause currency to depreciate and vice versa. Accordingly the exchange rate adjusts. In the long run, it is the economic growth and the policy stimulus in terms of fiscal policy and monetary policy that affect the exchange rate. A strong economic growth and a higher interest rate, will cause currency to appreciate in the long run and exchange rate will be better for the domestic currency in the long run.