Chapter 10, Problem 25QA

Why did conditions reverse in 2017, with the yuan appreciating against the dollar? What does this say about how the foreign exchange market works?

INTERNATIONAL BUSINESS AND TRADE   Mini-Case Synopsis and Questions   In 2008 and 2009, international financial markets suffered large declines in stock, bond, and real estate prices. Due to excessive government spending and related borrowing, Greece experienced a debt crisis that worsened after the introduction of the euro. To head off default, the Troika provided Greece a bailout in 2012. Some experts believe Greece should exit the euro entirely, but others argue that if other countries follow Greece, the euro and the EU itself could be seriously damaged.   Questions: How did Greece get into trouble with its government debt? Did joining the Eurozone help them pay rising government debts? Explain your answers.   Should Greece exit the euro? How would it benefit? What could go wrong? Explain your answers.

In the following cases, state which type of exchange rate risk the company is facing and wheter this risk is beneficial or harmful in nature. A British power-generating company imports coal from Germany, paying for the coal in euros. The company expects the pound to weaken against the euro over the next year. A UK toy company supplies only the domestic market. Its only major competitor in this market if a US toy company. The pound is expected to weaken against the dollar over the next year. A UK company has bought a factory in France, financing the purchase with a sterling borrowing. Over the next year the pound is expected to appreciate against the euro.