Your company, which is headquartered in the United Kingdom, is considering setting up a new manufacturing facility in Ruritania. Ruritania is a politically stable, economically developing Eastern European country.

Although, last year, the annual growth rate was only 0.7%, the annual growth rate has averaged around 6% per annum over the last five years. The rate of price inflation has been stable, averaging 5.2% per annum over the last five years.

Although Ruritania does not have a long tradition of democracy, Governments have been democratically elected for the last twenty years and new elections are due in Ruritania in approximately nine months’ time. There are two major political parties in Ruritania and recent opinion polls suggest that the present Government currently enjoys a 7% lead over the other major party. This opinion poll lead has remained reasonably stable for the last eight months. The other major party is also committed to democratic principles and a market based economy although, if elected, it is likely that they would increase both corporate and personal taxation to provide additional funding for their proposed social expenditure.

The Crown (the currency of Ruritania) traditionally had a centrally managed exchange rate, but the Ruritanian Government allowed the Crown to float freely about twelve years ago. This, initially, resulted in a fairly large drop in the value of the Crown, but the Crown has enjoyed reasonable stability against major international currencies during the past three or four years. There has been persistent press speculation that the present Government will peg the Crown against a major international currency within the next few months. This would be a preparatory step prior to applying for inclusion in ERM 2 and, eventually, adopting the Euro as a full member of the Eurozone.

Ruritania is currently negotiating for