Case: 1

BLADES, Inc. Case

Question 1: How could a higher level of inflation in Thailand affects Blades (assume U.S. inflation remains constant)?

Answer:

Higher level of inflation in Thailand can affect Blades. Due to inflation in Thailand foreign goods will become cheap. Again inflation will increase in an increase of imports and at the same time exports will go down. As a result imports of rubber and plastic components from Thailand for Blades Inc. will suffer and it will increase their production cost. On the other hand due to inflation in Thailand customers will get products from Blades Inc. at a lower price relative to others, which will increase their (Blade Inc.) export to rise. Eventually their sales will increase.

Question 2: How could competition from firms in Thailand and from U.S. firms conducting business in Thailand affects Blades?

Answer:

The main competitive advantage of Blade Inc. in this case is that they conduct their business (both export and imports) from Thailand in Thai Baht (Thailand’s currency).

The other competitors who exports in Thailand invoice their exports in U.S. dollars. On the other hand because of competitive advantage of Blade Inc. allows importers to continue business without less consideration about paying different amounts due to currency fluctuations.

In case of export Blade Inc. has an advantage of providing quality products and flexible pricing strategy, which gives them a good position in Thailand.

Question 3: How could a decreasing level of national income in Thailand affects Blades?

Answer:

When national income of a country decreases that reflects in a decreasing demand for foreign goods. As a result imports on the part of home country decreases. A decreasing level of national income in Thailand will reduce their demand for Blade Inc. products, which will decrease the sales of Blade Inc.

Question 4: How could a continued depreciation of the Thai baht affect Blades? How would it affect Blades relative to U.S. exporters invoicing their roller blades in U.S. dollars?

Answer:

A continued depreciation in baht may affect Blade Inc. in their export. Though Blade Inc. meet some of their expenses in Thai baht, but in case of currency conversion Blade inc. gets less amount of U.S. dollars because of Thai depreciation.

As Thai baht depreciates export in Thailand will unlikely to increase. Blade Inc. will be benefited against other U.S. competitors because their competitors invoice their product in U.S. dollar while Blade Inc. invoice in Thai baht. So if baht depreciates Thai importers have to pay more baht to dollar in case of payment to other exporters.

Question 5: If Blades increases its business in Thailand and experiences serious financial problems, are there any international agencies that the company could approach for loans or other financial assistances?

Answer:

If Blade Inc. increases its business in Thailand and experience serious financial problems then

Blades can call for loan from International Financial Corporation (IFC). IFC not only provides

loans to corporations but also purchases stocks. International Financial Corporation acts as a

catalyst. It provides loans to promote economic development of private sector.

Case: 1

Small business dilemma (Sports Export Company)

The factors that affect the current account balance between the United States and the United

Kingdom are as follows:

(1) Inflation

(2) National income

(3) Government restrictions

(4) Exchange rates

Above factors are discussed below:

(1) Inflation: If a country’s inflation rate increases relative to the countries with which it trades,

its current account will be expected to decrease, other things being equal. In this case if high

inflation takes place in UK because of the demand for football inflation will not affect much as

there are no domestic producer In UK.

(2) National income: A high national income in the UK may cause an increase in the demand

for football because UK’s purchasing power rises and people will be interested in spending

more. Which indicates the US based company will have more sales when UK’s national income

is high and low national income causes less sales.

(3) Government restriction: As there are no local producers of football in UK market imposing

any restrictions over import will reduce availability of football in UK market as a result the Govt.

will be less highly to impose any restrictions on import.

(4) Exchange rate: The value of British Pound changes over time. Sports Export Company sells

their product in UK in exchange of British Pound. However the fluctuations in British Pound will

not affect the demand for football in UK market. Because UK distributors make their payments

in British Pounds to US exporter, the exchange rate has no impact on British demand for

football.