Currency crisis when the value of the nations currency depreciates sharply

Currency crisis when the value of the nations

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■ Currency crisis - when the value of the nation's currency depreciates sharply. ■ Banking crisis - when investors lose confidence in a nation's banking system and massively withdraw funds. ■ Excessive foreign debt can harm the stability of national financial systems. The global debt crisis -- an important emergent global risk. This chapter underscores the growing imbalance in the finances of several national governments. ■ Governments spent huge sums to bail out financial system in the global financial crisis and are now faced with financing long-term liabilities of pension and healthcare programs. ■ National debt that exceeds 90% of a nation’s GDP diminishes GDP growth; numerous countries have surpassed this threshold. (Ask your students to look up the percentage for the U.S.) ■ International firms must proceed with caution as massive government debt can indicate economic instability, reduced buyer purchasing power, and additional market challenges Commentary on the Opening Vignette: THE EUROPEAN UNION AND THE EURO Key message ■ This vignette underscores the establishment of The European Union (EU) in 1993 and its current membership of 27 countries .
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Goal- Common currency- the euro- thus the EU created the European Monetary Union (EMU) and the European Central Bank (ECB) ( ). 2002- Euro banknotes and coins were issued to replace older, national currencies. 2012- the euro was the sole, official currency of 17 of the 27 EU member states. Note that Denmark, Sweden, and the United Kingdom are not participating in the monetary union. 17 Participating countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain A common currency, such as the euro : ◘ Integrates the EU economies into a unified whole ◘ Eliminates risks from multiple exchange rates ◘ Simplifies accounting and financial activities for the euro zone countries ◘ Reduces business costs ◘ Harmonizes prices for customers across the EU ◘ Facilitates trade and price comparisons Uniqueness ■ This vignette sets the stage for exploring monetary and financial structures that enable trade and investment. STUDY GUIDE FOR CHAPTER 13: STRATEGY AND ORGANIZATION IN THE INTERNATIONAL FIRM STRATEGY IN INTERNATIONAL BUSINESS The course now moves from macro level analyses of environments and supranational agencies to the micro-level of individual firm strategies. The industries each company is in will determine what kind of strategy they use: Food and consumer products companies with an international scope have tended to use multi-domestic strategies, at least to begin with, since customer preferences vary so much across markets. Key to understanding this chapter is the IR framework which shows the environments firms might operate in and strategies fitting each of the four quadrant environments.
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