Chapter 8&9 key questions
foreign exchange market instruments
Chapter 8 Key questions:
1. A key point in taking a company international is arbitrage or taking advantage of a price difference. Take for instance Samsung in China. They are dominating the market against their rival Apple 3-1. Apple introduced a cheaper international version of the iPhone in response but is losing its high-end market to Samsung. Samsung mobile devices are the first choice among corporate executives. Also, politically, Chinese officials are familiar with Samsung products with a committee following its moves. However, the Chinese media is increasingly critical of Apple. Secondly, even though the Chinese market knows that Samsung is Korean, they have targeted a niche market in the world’s largest economy.
2. Another key point in taking a company international is carry trade which is a form of exchange arbitrage. An example of carry trade is to borrow money in the United States at 3.5 % and invest it with an Australian Bank for a 6.50 % yield. Now this practice applied to a BRIC like Brazil would be a good investment as Brazil’s global interest rates are at 14.25 percent which is the highest among 20 countries. This rate is also 28 times the overnight rate in the U.S. Another BRIC country with good carry trade value is India. The Indian rupee is the best performing carry trade in current markets in the past year.
3. Last key point from chapter 8 to take a company international is the foreign exchange value, which is the most important of three and a compliment of them. It is a very important arbitrage plus a carry trade knowing the most advantageous country where the USD gains the most. The Indian Rupee is c...
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...eased significantly in 2015 and stood around US$ 333 billion. Recent experiences, suggest that large reserves in the case of emerging market economies like India act as a buffer and help in weathering the impact of sudden stops in capital flows, especially during crisis period. The stability exhibited by the exchange rate of the rupee in the recent months, reflects the improved confidence of global investors in the Indian economy.
Overall, financial markets in India have exhibited stability and resilience. The outlook for foreign portfolio flows to India remains quite positive, as India is remains an attractive investment destination. Additionally, unlike Russia, India stands to gain substantially from the steep fall in crude oil prices through improvement in current account deficit, fall in inflation, reduction in fiscal burden on account of oil subsidy, etc.
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