International Trade Foreign Exchange Market 

One function of the foreign exchange market is to convert the currency of one country into the currency of another. A second function of the foreign exchange market is to provide insurance against foreign exchange risk. The most common approach to exchange rate forecasting is fundamental analysis. This relies on variables such as money supply growth, inflation rates, nominal interest rates, and balance-of-payment positions to predict future changes in exchange rates.

Identify a country outside of the U.S. and its currency and initial exchange rate and answer the following questions:

• How stable is the currency against the U.S. dollar?
• Why is this so?
• How many other countries trade with your chosen host country?
• Are there risks involved in doing business with this country?
• What are the projections for this country’s expansion over the next 10 years?

You’ve developed a very popular, up-scale but reasonably priced, clothing fashion line for young people.  You produce designs in a number of countries, manufacturing in low-cost locations, and with retail outlets in major U.S. and European cities.  Demand is popping and you have access to plenty of production capacity and capital.

Answer the following questions:

• How should you organize the business outside of the U.S.?
• Should you set-up reasonably independent companies, subsidiaries, in each foreign market?
• What would that do and not do for you?
• Or, do you want to impose a strict brand image, procedures, and central planning from headquarters, where your offices are?
• What are the pros and cons of this approach?

International Trade Foreign Exchange Market

Explain the First Mover Advantage and the six modes of entry into foreign markets. Identify a foreign market that you will be entering. What are the advantages and disadvantages of each? Identify the best market entry strategy that you will be using for the foreign market of your choice.

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