Assignment: International Finance and Monetary System

Introduction

In Lessons 10 to 12, you continued to examine international business issues related to economic co-operation, regional economic integration (trading blocs), and the international monetary system.

This assignment will also contribute to the development of your Major Project.

Instructions Part A: Economic Cooperation and Regional Economic Integration.

Prepare a 750-1,000 word report (2 to 3 pages, double-spaced) with the following:

1. Of which trading blocs are your two target countries members? If not part of a bloc, which bloc do you think they should join? Describe the advantages and disadvantages of being part of a trading bloc.

2. How will Canada's membership in NAFTA help or hinder your ability to take your product or service to your two target countries?

3. What is the difference between a free trade agreement (such as NAFTA) and an Economic Union (such as the EU)? What would be the advantages and disadvantages for Canada to join a Customs Union with the USA and Mexico?

4. Who are the PIGS in the EU? What are the disadvantages to the other countries for being in a tightly coupled economic union with them?

Part B: International Money Markets and Foreign Exchange.

Prepare a 1,000-1,500 word report (3 to 4 pages, double-spaced) with the following:

1. In many ways, the economy of a country is like the economy of a household. If the family spends more than it earns, then it faces difficult times. On the other hand, if a family earns more than it spends, then it can save for a rainy day. Discuss the relevance of this analogy to the economy of a country. In particular, discuss imports, exports, the balance of payments, and the strengthening or weakening of the nation's currency.

2. When the USA experienced high inflation in the 1970s, Canada also experienced high inflation. Indeed, Canada was said to have "imported inflation" from the USA. If Canada's exports to the USA were high, our foreign exchange reserves would have increased. Since exports create jobs, how could we have imported inflation from the USA?

3. Suppose a Canadian firm wants to import canned beef from Brazil. The shape of graph of GDP per capita (in US$) from 1960 to 2005 (below) shows that Canada as a significantly higher rate of GDP increase. Canada also had a higher rate of exports. Based on these two factors, which country would have the harder currency during this period? Why? Which country do you think would have the greater rate of inflation in this period? Why? Find the relevant PPP numbers for each country. Does the result match your analysis?

4. Based on the 1960-2005 period, if a Canadian company were to import from Brazil, and must pay in Brazilian reias when the goods are delivered in 90 days, should the company get the currency through the spot or the futures market? Why? Would it be different if they had to pay in $US? Explain.

Part C: International Monetary Systems (30 marks)

Prepare a 500-1,000 word report (2 to 4 pages, double-spaced) to reflect on and compare the current economic, political, technical and financial risks your international business will face entering the two countries you selected. Considerations might include:

• Economic stability
• Currency fluctuations and inflation
• Rising nationalism and other political uncertainties
• Potential changes in administrative trade barriers
• Accounting practices
• Taxation
• Relevant cultural or technological forces.