International Financial Management

On the attached Key Outline please add the following information:- Discuss how purchasing power parity would impact this specific venture in this particular country. The existence of purchasing power parity is an advantage for making a foreign investment. If there were no purchasing power parity, this would be a disadvantage for making a foreign investment in a country with high inflations rates and an advantage for making a foreign investment in a country with low inflation rates. -Discuss how interest rate parity parity would impact this specific venture in this particular country. The existence of interest rate parity would be an advantage for making a foreign investment. If there were no interest rate parity, this would be a disadvantage for making a foreign investment.Part 2:Identify the advantages and disadvantages of this investment based on the capital structure of the firm.
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Colorado Technical University
Unit 4
Exchange Rate Forecasting
Laura D Moord
Key Outline
1.0 Introduction
2.0 Body
2.1 Forecasting foreign currency exchange rates
For trade to take part between two countries there is need to have an exchange rate. Forecasting
on exchange rate has its advantages; that is identical goods exported from various countries should
have equal prices. Therefore, it is necessary to understand this rule. Thus, based on this principle,
exchange rate forecast is essential as one as able to identify price changes due to inflation. For
example, if prices are expected to increase by 4 percent in Canada and USA by 2 percent then the
differential is 2 percent.
This means that purchasing prices in Canada are going to go high faster than those in the United
States. Therefore, the exporter will be able to identify a better market for the goods. On the other
hand forecasting on exchange rate can discourage trading. Some figures are not accurate since it
is all based on speculation and prediction, which has minimal chances of taking place. It is good
for companies to trade on current terms and not to focus too much on predictions and speculation
regarding foreign exchange.
2.2 Interest rate relative purchasing power parity and forecasting
Interest rate change can affect trading and investment. Macadamia nuts market is hugely growing
in European countries and some part of Canada as well as South America. Consequently, this trade
is gaining momentum due to the improved interest rate. Banks offer currency and loan lending
procedures, which have seen the control of the sector. This has been an advantage to traders selling
their product abroad as they can acquire loans at a low-interest rate. This will increase the trading
levels. Purchasing power parity will also be influenced by changes in prices of the commodity and
future expectation of evolution in particular goods will trigger more demand for a specific product.
Therefore trading will increase. One disadvantage that involves interest rate purchasing power
parity speculation is lack of adequate information regarding price changes to determine demand.
Again, loans issuing to foreign companies are restricted to so many bureaucracies needed. Due to
such issues, macadamia nuts trade will slow down.
2.3 Foreign Investment Policies
Every country has policies and regulations that govern on trade. Importation of particular product
can be regulated and controlled. Taxes and customs duties are often increased. Consequently, such
problems disadvantage the business. On the other hand, some countries have policies that favor
foreign trade. Especially macadamia nut trade, the product has received much support in most
states because the product adheres to the set health policies and regulations. Foreign policies
encourage more business as the product are less taxed, customs duties are minimized, and tough
and tight bureaucracies are eliminated thus leading to benefit and advantage to the company
(Mishkin, 2010).
2.4 Government limitation on foreign investments.
Trade needs to be regulated by the government whether locally or internationally. Local
government needs to be notified of foreign investment, and the host country of venture need to be
informed so that they can accept on the terms and conditions for the trade. On this kind of
investment, the local authority in the United States has set up policies that support and regulate
local trade. Purchasing of raw nuts and processing to final products needs much regulation to
minimize fraud cases and enhance compliance. This disadvantages the company as the requirement
that is demanded by the government affects the business growth. On the foreign market, same case
applies where the host country demands certification of various practices undertaken by the
business. On the other hand, government’s limitation on foreign investment benefits the firm.
Stringent regulation placed eliminates unnecessary completion in the market, which acts as the
supply for the growth of the product.
2.5 Trade Regulations and policies.
Trade regulations are important in regulating business. However, tough trade barriers have various
disadvantages, which include reduced customer satisfaction. Import tariffs increase the cost of
interaction al goods. This leads to decrease in import of macadamia nuts in that country hence
resulting in lack of customer satisfaction as the product is limited. In some countries trades policies
makes foreign goods accessibility almost impossible. It can create Sour trade relations (Mishkin,
2010). These tough regulations and restrictions can lead to diplomatic fallout hence lowering
market trade for the product. In most cases, this can happen when the USA bans any form of
trading with a particular country, which was a leading market for the macadamia nuts. Another
disadvantage includes reduced global economic growth. These barriers disadvantage economic
growth they do more harm than good. Developed countries protect domestic companies by
adopting trade policies that favor the companies thus hindering foreign trade.
Although trade regulations have many disadvantages, there are still benefits that are enjoyed in
trading of this kind of product. The demand is high, and the supply is very low. Hence, regulations
are not restrictive on this kind of product.
2.6 International finance regulations
International financial regulations are systems and mechanism set by World Bank and central
banks of particular counties to regulate the money flow and enable a friendly trading environment
with channels of trade. Due to the global crisis, many countries pushed for a more tight regulated
liquidity flow. Requirement and performs of funds have discouraged many investors from
venturing into particular markets and specific areas of the market. Financial regulation subjects
firms with specific conditions and restrictions (Krugman, 2008).
Advantages of international financial regulation include: regulation is vital as it protects investors
and encourages transparency on the investments. The flow of money is monitored, and payment
is enhanced through appropriate channels. This helps the company obtained payment through
mechanisms that are lawful and not through backdoors. Another advantage of financial regulations
on international finance is that it aims at consumer protection that is, securing the appropriate
degree for customer protection finally global regulation policies enhance financial stability, which
contributes to the security of the firm and its financial systems.
3.0 Conclusion
4.0 References
References
Krugman, P. R. (2008). International economics: Theory and policy, 8/E. Pearson Education
India.
Mishkin, F. S. (2010). Inflation targeting in emerging market countries (No. w7618). National
bureau of economic research.

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