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Importance of statistics in business decision making
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Purchases of products and services are not always restricted within the borders of a single country. As consumers in one country transact with businesses in other countries, the balance of payments (BOP) keeps a record of the exchanges (Eiteman, Stonehill, & Moffett, 2010). For example, a purchase made in the United States (U.S.) for Chinese-made goods would be considered an export to China and an import to the U.S. even if it is purchased by a consumer in his hometown. In order to complete this transaction, an exchange of goods, services, or money between the U.S. and China must be made. Considering the U.S.-China example, in theory the U.S. BOP account would record an increase in U.S. merchandise imports and China would consider it as a merchandise export in its BOP account (Eiteman et al., 2010).
This paper will address the relevant data included in the BOP accounts used by different entities to make decisions. It will also include an assessment of the main reporting agency and its role in reporting statistical information worldwide. Finally, it will address the various types of foreign exchange exposure linked with the BOP.
Balance of payments data summarizes all international transactions for a country over a specified time period (Eiteman et al., 2010). Measurements included in the BOP can significantly impact decisions made by various governments, multinational companies, investors, and consumers alike (Eiteman et al., 2010). For example, governments use BOP data as they set economic policies, manage currency exchange and interest rates, and gauge their competitiveness in the global market (Eiteman et al., 2010). Global corporations make use of the data to determine the importance of specific trades and financial...
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...(2010). Multinational Business Finance. (12th ed.). Boston, MA: Pearson Education, Inc.
International Monetary Fund (IMF). (n.d.a). About the IMF. Retrieved March 9, 2014, from http://www.imf.org/external/about.htm
International Monetary Fund (IMF). (n.d.b). Balance of payments and international investment position statistics. Retrieved March 9, 2014, from http://www.imf.org/external/np/sta /bop/bop.htm
International Monetary Fund (IMF). (n.d.c). Our work. Retrieved March 9, 2014, from http://www.imf.org/external/about/ourwork.htm
International Monetary Fund (IMF). (n.d.d). Tackling current challenges. Retrieved March 9, 2014, from http://www.imf.org/external/about/onagenda.htm
International Monetary Fund (IMF). (n.d.e). United States balance of payments summary. Retrieved March 8, 2014, from http://elibrary-data.imf.org/DataReport.aspx?c=7183654 &d =33060&e=141761
Saputo’s business is constantly affected by changes in the exchange rate as the majority of its business takes place outside of Canada. Due to the fact products and cash flows travel internationally, the company is exposed to economic exposures. Exchange exposure affects Saputo in many ways such as the cost of production and demand for their products. Transaction exposure affects Saputo when cash flows from foreign operations into Canada. Saputo is affected by translation exposure when foreign revenue is converted into Canadian dollars for its financial statements.
When we look at just a few of the specifics of our trade with the U.S., we find that:
In 2001 China entered the WTO it has made major stride in the world economy especially with trade agreements with the biggest capitalist economy and the biggest GDP and most developed country in the world the United States of America which has nearly 2.3 trillion of exported goods and service in 2013 (President, n.d.) When China entered in the WTO it had become the sixth largest economy and the largest market trade and was slightly ahead of Italy and just behind France. “China is third largest trading partner with the U.S and its trade surplus with the U.S. has increased to $201 billion around 2005 and by 2014 the total China-U.S. trade deals was 591 billion”. (Morrison, 2015) It had a global current account of $160 billion around 2005 (Hufbauer, Wong, & Sheth, 2006). As of 2015 “China is the U. S’s second largest trading company and the third largest export company and its biggest source of import”. (Morrison, 2015) Sales from a foreign affiliated U.S. firms in China totaled at 364 billion by 2013. (Morrison, 2015). What is also amazing is that China has the biggest U.S. treasury bonds and that keeps U.S interest rate low. Between 2010 to 2014 General Motor sold more cars in the Chine’s market than in the U.S. market and many U.S. firms participate in Chinese market to stay globally competitive. (Morrison, 2015). This kind of
Secondly, the existence of merchant may maintain the stability in border areas (South-East). And the oversea trade is also an extremely part of the tribute system that can display China’s powerfulness. Lastly,the author calls for lax of business environment and tax policy with the expectation of trade
U.S Federal Deficit and Debts:Understanding the history and context. (2011, November 1). Utah Foundation. Retrieved January 25, 2014, from http://www.utahfoundation.org/img/pdfs/rr7
Public debt, which comes from securities and bonds issued by the United States Treasury, is responsible for over 60 percent of the debt (“Debt Position and Activity Report” 1). These debts are being held by the public inside and outside the US. Over 25 percent of the debts are held by foreign governments, in which China and Japan accounts for almost half of the sum (“Treasury Bulletin: September 2009” 60).
The massive increase in the Chinese trading relations was fueled by the United States in the year 1979 through the normal trade relations between the two countries. In addition, the Chinese non-concession to the World Trade Organization (WTO) in the year 2001 also facilitated its trading activities with different countries including the United States (Kaplan, 57). However, trading relations with the Chinese have been uneasy resulting from the massive trade imbalances in the recent past, which grows exponentially. The protectionist policies of the United States especially in Washington and Beijing have been putting pressure on the Chinese to revalue their currency as well as protecting it from counterfeits, which may be of adverse effects to the trading relations. This paper gives a comprehensive discussion on the foreign trade relations with china. It further gives an elaborate discussion on the impacts of foreign tr...
The IMF plays a pivotal role in the international economy system. As its initial goal about reconstructs world’s international payment system, such as contributes to surveillance of the global economy, to stabilize exchange rates, to lend money to help countries to resolve emergency situation but with certain conditions and should pay back in a short time. The IMF has done a large number of things to help the world economy, not only in the western countries, but in many developing countries as well.
Other types of exchange rate risks are translation risk and so-called hidden risk. The translation risk relates to cases where large multinational companies have subsidiaries in other countries. On the financial statement of the whole group, the company may have to translate the assets and liabilities from foreign accounts into the group statement. The translation will involve foreign exchange exposure. The term hidden risk evolves around the fact that all companies are subject to exchange rate risks, even if they don’t do business with companies using other currencies. A company that is buying supplies from a local manufacturer might be affected of fluctuating foreign exchange rates if the local manufacturer is doing business with overseas companies. If a manufacturer goes out of business, or experience heavy losses, it will affect all the companies it does business with. The co...
the effect that the work of the IMF and the World Bank have had on the
The monetary model, although a useful establishment, can only be used to determine exchange rates in the long run due to its reli...
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
Ferguson et al. International financial stability. Geneva: International Center for Monetary and Banking Studies, 2007. Print.
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...