...Movement of the Yen and Dollar Exchange Rates Johan Floyd Omoso Boles 173812 International Christian University International Finance Heather A. Montgomery Abstract: This study finds the purchasing power parity (PPP) model of exchange rates to explain movements in the yen-dollar exchange rate over the long run of twenty two years. The results show that this theory does not necessarily provide a satisfactory explanation of the behavior of exchange rates. However, as the exchange rates became flexible again in recent years, the theory has become more applicable. Does the PPP model exactly indicate that changes in price levels could bring about changes in the yen/dollar exchange rate? 1. Introduction “As for all that bold talk from Tokyo: as FT Alphaville earlier remarked, citing a Wednesday note from Nomura’s rates team, central banks ‘just don’t seem to be getting the same, err, market bang for their buck as they used to’ ” (The Financial Times, August 25, 2010). Apparently, Japan’s effort to push its yen to appreciate a long time ago did not seem to get a huge market response. Nowadays, the situation is not getting any better despite the struggles of the Central Bank of Japan to stabilize the growth of its currency. Acknowledging this scenario, the researcher would like to talk about the influence of the PPP (Purchasing Power Parity) model to argue if changes in price levels could bring about changes in the yen/dollar exchange rate. Below is the yen-dollar exchange...
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...payments forecast. 3 3. Purchasing power parity forecast. 4 4. Forward rate as unbiased predictor forecast. 4 5. Compare forecast. 5 6. Compare past five day forecast and results. 5 Appendix 6 Table 1: Interest Rates 6 Table 2: Inflation Rates 6 Table 3 : Balance of Payments 6 Table 4 : Spot Exchange Rate 7 Explanation and Usage of Data: Using the website Data World Bank interest rates, inflation rates and balance of payments are consolidated in the tables section. Forecasted future spot exchange rate between Japanese yen and US dollar: A country’s import/exports affects exchange rates just as exchange rates affect the level of imports and exports. Generally application the balance of payments approach to forecasting foreign exchange rates imply that a country running a balance of payments deficit will eventually see its currency depreciate. This is due to the fact that there is a surplus of that country’s currency in the market vs. what is held domestically. The supply of the currency will drive the price for the currency down. Occasionally, countries will devalue their currency in order to exports more competitive. In theory the fall of the domestic currency will push the BOP closer to zero. Based on the data provided we can see that the United States continues to operate at a BOP shrinking deficit and the Japan BOP continues to operate at a shrinking surplus. An analysis of historical Yen/$ exchange rate shows that the Yen appreciated starting in 2008 (90...
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...CHAPTER 17 MULTINATIONAL FINANCIAL MANAGEMENT (Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines. Multiple Choice: True/False (17-2) Multinational fin. mgmt. F T Answer: a EASY [i]. Multinational financial management requires that financial analysts consider the effects of changing currency values. a. True b. False (17-2) Multinational fin. mgmt. F T Answer: b EASY [ii]. Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations and subsidiaries. a. True b. False (17-3) Currency appreciation F T Answer: a EASY [iii]. When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with a dollar. a. True b. False (17-3) Floating exchange rates F T Answer: a EASY [iv]. The United States and most other major industrialized nations currently operate under a system of floating exchange rates. a. True b. False (17-4) Exchange rates F T Answer: b EASY [v]. Exchange rate quotations consist solely of direct quotations. a. True b. False (17-4) Cross rates F T Answer: a EASY [vi]. Calculating a currency cross rate involves determining the exchange...
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...Case: Anglo American PLC in South Africa (from Lesson 5) 1 Who are the various stakeholders that Anglo American needs to consider as it adopts an effective HIV/AIDs strategy? - Anglo American employees and their families - Government bodies - Non- Profit organizations (NGOs)/ World Health Organization (WHO) - Competitors/ Other large mining concerns or companies operating in South Africa - Pharmaceutical companies - National Union of Mine Workers - Financial Institutions - Shareholders 2 What are the pros and cons of Anglo American’s adoption of an aggressive strategy in combating HIV/AIDS among its South African workforce? What recommendations would you give the company concerning its HIV/AIDS policy? Pros: - Prevented further operating loss and increased productivity. - Bright future as government started national strategic plan to combat HIV/AIDS. - By adopting the strategy, the company achieves trust and commitment from ethical minded shareholders. - It got good response from WHO, Global business council for HIV/AIDS and other NGOs, this makes the company a socially responsible organization in Global business. - It became a trend setter for other major companies operating in South Africa, thus gaining a goodwill among other companies Cons: -This program had spiraling costs for the company as the distribution of the medicines remained high. - It was unable to determine if its efforts are making a difference in underlying problem as one...
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...EXECUTIVE SUMMARY This assignment report requires the author to choose an organization either in the textiles or clothing manufacturing and retailing industries. The purpose and scope of this report is to discuss the application of the strategic management process on the chosen organization. First of all, the introduction on the strategic management process is made whereby the importance of it towards an organization is explained. Next, a company called Body Glove International L.C.C that is specialized in clothing manufacturing and retailing markets is chosen. A company profile that briefly describe the company such as the founder and year founded, location, product range, competitors, revenues and turnover are written. Then, the importance and impact of the first stages in strategic management process that is strategic analysis towards Body Glove International L.C.C is explained. In strategic analysis, there are three types of evaluation on an organization, namely, general environment, competitive environment and internal environment. General environment explained about the weak signals that the firm must detect before it creates impact towards the company. There are three types of tool to detect the weak signals, namely, pest analysis which focuses more on external factors, swot analysis focuses on its internal and external environment of the organization and scenario planning which is about future prediction. Competitive environment on the other hand emphasizes more to...
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...------------------------------------------------- Chapter 9 International Trade & Exchange rate ------------------------------------------------- What You will Learn in this Chapter * Study the theory of Comparative Advantage * Differentiate between Terms of Trade and Balance of payments * Explain Exchange Rate Determination * Describe the Concepts closely related to exchange rate of exchange A. The theory of comparative Advantage: In his book ‘Principles of Political Economy’, David Ricardo (1817) explained his theory of Comparative Advantage (comparative costs). This theory, subsequently modified by John Stuart Mill, is the foundation of the theory of international trade. The trade between two countries takes place because the same commodity is produced at different costs in different countries. The differences in the cost of production arise because of differences in factor endowments in different countries and the degree of specialization. Thus trade relies on cost differences. The Doctrine of Comparative costs states that a country will benefit by specializing in the production of those commodities in which its comparative cost advantage is greater, exporting these commodities in exchange for commodities in which the comparative cost advantage is less. Panel (a) illustrates the fact that over the past 40 years, the United States has exported a steadily growing share of its GDP to other countries and imported a growing share...
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...What are the trends in growth, inflation, unemployment, and debt? Over the last ten years Japan had a tremendous growth. It is no surprise for a country like Japan to have an increase in GDP among the last ten years; it had a GDP of $4.3 trillion in 2004 and kept increasing till it reached $5.96 trillion in the end of 2013 (Trading Economics, 2013). This significant increase in in the GDP is due to the increase in the net exports, since nowadays Japan is known as the world’s second largest developed economy. Japan exports a lot of automobiles because it is one of the leading countries in the production of automobiles that are spread all over the world. Moreover, Japan is the largest creditor nation while running an annual trade surplus. The GDP per capita increased from $29369.49 in 2004 to $31425.49 in 2013 (Trading Economics, 2013) meaning that the economy is vigorous since people are earning more so they have more disposable income to spend which vitalities the economy and the services thus leading the economy to thrive. All these conditions led the growth rare to increase from 0.1% in 2004 to 0.3% in 2013 (Trading Economics), however it is still considered low since it only increase 0.2%. In general we can come to a conclusion that the Japanese economy is healthy and is experiencing a positive growth. Since we already know that the economy in Japan is booming it would be rational to say that there are new opportunities for new positions in the market, the demand for workers...
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...the contraction of the U.S. And Japanese economies and the rise in the value of Yen hurt Sony's exports from Japan ? The strong rise in the value of Yen and the contraction of US economy resulted in a sharp drop in exports from Japan. The decline in exports was primarily due to a lower demand for consumer electronic products in US due to the slowing US economy, as well as the strong rise in the value of Yen relative to US dollars or Euros making the exports more expensive or less affordable for foreign countries. As exporters saw their sales and profits declining, they started cutting operating costs and slashing orders from their suppliers thus creating a ripple effect in the Japanese economy affecting both production and employment. These events and deflation caused a sharp contraction in the Japanese economy where consumers were delaying purchases in hopes that prices would continue to fall. Sony as well as other local companies were hesitant to invest more in technology and or R&D due to these uncertain conditions thus making their exports less competitive relative to competiton. 2. In what other ways has the strong yen affected Sony's bottom line ? What would be effect of a weak Yen? Exchange rate fluctuations affect Sony’s operating profitability because many of Sony’s products are sold in countries other than the ones in which they were manufactured. The strong appreciation of Yen created a negative impact on Sony's financial results as exports were invoiced in...
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...The Rise (and Fall) of the Japanese Yen Lawrence Cifarelli III, Nazanin Ershad, Natthima Sonsoem, Anyesha Mahaptra University of New Haven Abstract This Case study provides an insight to the fluctuations experienced in the currency of Japan, Yen from the late 1990’s to recent years. Japan follows the floating currency monetary policy due to which there is no measures taken on to control the fluctuations. Japan experienced magnificent growth through the 60's, 70's, and 80's leading into the 90's beginning. In the late 1990's, Japan’s economy marked its growth significantly slower, which had then come to be known as the 'lost decade' due to Japanese Asset Price bubble that collapsed. Eventually the nation faced major issues regarding environmental disasters, hollowing out of industries, etc. The past events which have caused the rise and downfall of Japanese Yen has been illustrated for examining the causes of the appreciation and depreciation of this currency. The influence of this floating currency on Japan's economy has been depicted in this case study. This paper also provides some applications of the measures that can maintain the stability of the Japanese Yen. Japan experienced tremendous growth throughout the 1960s, 1970s, and 1980s leading into the leading into the early 1990s. After World War II, Japan underwent a period of restoration followed by the events in 1978 where Japan excelled as a manufacturer partnering with the United States which helped to make its...
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...terms: international monetary system, exchange rate, spot exchange rate, forward exchange rate, fixed exchange rate, floating exchange rate, devaluation/revaluation of a currency, depreciation/appreciation of a currency, soft currency, and hard currency. ◆ Identify the different types of exchange rate systems. ◆ Distinguish between direct and indirect quotations, and American and European term quotations, and calculate cross rates between any two currencies. ◆ Differentiate between spot and forward rates, and explain what it means for a forward currency to sell at a discount or premium. ◆ Briefly explain the concept of interest rate parity and write the corresponding equation. ◆ Briefly explain the concept of purchasing power parity and write the corresponding equation. ◆ Explain the implications of relative inflation rates, or rates of inflation in foreign countries compared with that in the home country, on interest rates, exchange rates, and on multinational financial decisions. ◆ Distinguish between foreign portfolio investments and direct investments, and briefly explain the following terms: Eurocredits, Eurodollar, Eurobonds, and foreign bonds. ◆ Explain why new issues of stock are sold in international markets. ◆ Identify some key differences in capital budgeting as applied to foreign versus domestic operations including the following terms: repatriation of earnings, exchange rate...
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...contribute to the company’s revenue. In 1984, consolidated revenues for The Walt Disney Company was $1.7 billion and net income totaled $97.8 million. Despite fast growth of all lines of businesses, Mr. Anderson, the director of finance at The Walt Disney Company was concerned about the company’s exposure to exchange risks as the yen swung wildly in the past years. Hedging off the exchange risks benefits the company by stabilizing the cash inflows, which grants the company with easier cash management, more room for investment-planning and lower risks of financial distress. High expectation on the future growth of yen royalty receipts makes hedging even more imperative since declining exchange rate could possibly wipe out the future increasing yen revenue. Table 1 demonstrates how exchange risk may reduce profitability of the bank using the exchanges rate over the past five years. Assuming the royalty revenues grow with CPI, as yen depreciated, the revenue can only afford less and less equivalent goods or service in U.S. Year Yen/Dollar U.S. CPI Japan CPI Royalty income or equivalent (Yen in million) Equivalent Purchasing Power (USD in million) 1980 225.7 100 100 7,123.78 0.316 1981 220.1 110.4 104.9 7,472.84 0.308 1982 248.3 117.1 107.8 7,679.43 0.264 1983 237.4 120.9 109.9 7,829.03 0.273 1984 237.3 126.1 112.3 8,000.00 0.267 On the other hand,...
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...Nissan Company: Abstract * Nissan is one of the world’s largest automobiles company, * Manufacturing locations in 18 nations and serving in around 160 locations. * In year 2007, Nissan’s Executive Vice President, Tadao Takahashi mentioned its strategy of moving to transnational from multi-domestic so at present Nissan has increased its focus on emerging markets like India and Russia. This presentation aims to evaluate Nissan’s “Go-Global” strategy. In this analysis, we will try to assess the various imperatives that ……… * Company has to operate at multiple locations, * How it chooses among various locations * How it goes about implementing the expansion plan. * Studying Nissan’s global strategy and focusing on its moves specifically in India and Russia. This analysis will conducted by using various analysis tools like porter 5 forces, SWOT analysis, and PESTEL analysis as well value chain and after analysis will suggest the better strategy for betterment of company and for future prospects. Introduction With the increasing trend of globalization and heightened competition, most of the companies at some point of time think of expanding to new locations because of different imperatives ranging from efficiency, growth, competition, knowledge or mix of few. Each company decides its own parameters while making strategic choices of a market or a country NISSAN at a glance: * Nissan is a multinational automaker headquartered in Yokohama,...
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...Analysis of Toyota Motor Corporation By: Thembani Nkomo This paper will explore the external and internal environment of Toyota Motor Corporation, and suggest recommendations to sustain its competitive advantage. Analysis of Toyota Motor Corporation by Thembani Nkomo ANALYISIS OF TOYOTA MOTOR CORPORATION TABLE OF CONTENTS 1 COMPANY OVERVIEW 2 EXTERNAL ENVIRONMENT OF THE AUTOMOTIVE INDUSTRY 2.1 Industry Overview and Analysis 2.2 Industry Life Cycle 2.3 Industry Demand Determinants 2.4 Porter’s Five Forces 2.5 Industry Cost Structure Benchmark 2.6 Industry Competitive Landscape 2.7 Major Competitors 2.8 Key Success Factors in Industry 3 INTERNAL ENVIRONMENT OF TOYOTA 3.1 Core Competencies 3.2 Distinct Competency 3.3 SWOT Analysis 3.4 BCG Matrix: Internal Analysis of Toyota Portfolio 3.5 VRIO Framework Analysis 3.6 Toyota’s Efforts in Emerging Economies 3.7 Case Study: Toyota’s Successful Strategy in Indonesia 3.8 Strategic M&A, Partnerships, Joint Ventures, and Alliances 3.9 Analysis of Financial Performance 4 RECOMMENDATIONS 5 APPENDICES 6 REFERENCES Analysis of Toyota Motor Corporation by Thembani Nkomo 1. TOYOTA CORPORATE OVERVIEW: Founded in 1937, Toyota Motor Corporation is a Japanese company that engages in the design, manufacture, assembly, and sale of passenger cars, minivans, commercial vehicles, and related parts and accessories primarily in Japan, North America, Europe, and Asia. Current brands include Toyota,...
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...1. Introduction 1.1 Background Japan has the third largest economy in the world. As it is surrounded by sea, the country’s port plays an important role in maritime transportation for both exports and imports. In March 2011, the world was affected when Japan was struck with natural disasters (Earthquake and Tsunami). This sudden disaster sent everyone around the world into frenzy. It affected Japan’s ports, shipping and logistics. As a result of the natural disasters, ports in the northern area of Japan had to stop operations after the Tsunami washed away port facilities, leaving the area in tatters. Ports such as Hachinohe, Ishinomaki and Onahama were severely damaged and it would take months before operations can resume. It will take some time for Japan to rebuild itself as this is the worst disaster to hit the country since the Hiroshima/Nagasaki nuclear bombing during the World War 2. 1.2 Objectives of Project The team will be doing a research and critical analysis on how the crisis has affected Japan’s economy and how the revival of Japan will benefit the shipping economy. The areas of focus will be on the economic impacts of the various shipping markets and other factors contributing to the crisis and forecasting the future outcome in the shipping industry. We intend to go beyond the surface and dig deep into the crisis to fully understand how dealing with a crisis really works. This includes looking at past records as well as analyzing the situation in...
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...in global production and supply chain b. Economical impact of the Japanese Disaster 2- Impact on global production in important industries a. Automobile Industry i. Toyota b. Electronics Industry 3- Collateral impacts of the disaster a. Increase in electricity costs b. Explanation of why the yen is so strong. i. Supply Chain ii. Cheap Investment iii. GDP Impact iv. Export Economy v. Currency vi. Monetary Policy 4- Innovation in supply Chain and the Disaster in Japan a. The Top 10 Supply Chain Innovations from 1880-1990 (1) b. Supply Chain Innovation c. Supply Chain Innovation - Environment d. Long-Term Disarray after Japan Disaster Conclusions Bibliography Butterfly Effect of Japan´s Disaster on Global Production. 1- Japan Background a. The relevance of Japan in global production and supply chain Japan is an island nation located at the East of Asia, in the Pacific Ocean. Its currency of legal course is the YEN (¥). Japan has the tenth largest populations in the world with over 127million people and a GDP of USD$ 5,068,996 million by 2009. The main industries of Japan’s economy are manufacturing and technology, mainly in automobiles, transportation equipment, electronics and steel. Japan is a country with...
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