Internet Exercises


1			At last analysts are viewing Argentina with cautious optimism. After 27 months, industrial production finally rose in November of 2002, and companies are beginning to see opportunities to export, thanks to the sharply devalued peso. Industries that saw their markets erode during the decade that the peso was tied to the dollar are seeing renewed demand for their products. In fact, it seems that companies have finally identified how to succeed with a cheap peso. Many are substituting cheap locally made goods for more expensive imports. While the country has yet to make a deal with the IMF, some are saying that Argentina is now in the midst of "el veranito" or Indian Summer. Discuss the opportunities created by the devalued peso for both Argentine companies and also international firms doing business in Argentina. What threats have emerged as a result of the cheap peso? Go to www.imf.org and examine the current situation with Argentina and the IMF. What effect has any action by the IMF had on Argentina’s currency? In your opinion, would Argentina be better off pegging its currency to a major trading currency (see for example, http://www.frbsf.org/publications/economics/letter/2002/el2002-25.html)? Why or why not? What implications would a peg have on local companies? On foreign companies exporting to Argentina? Source: "The Gears Start To Turn Again," Businessweek, 1/27/03, p. 50.




2			The Coalition for a Sound Dollar, composed of 61 trade associations representing a wide range of American industries, is on a mission. After years of lobbying first the Clinton administration, then the Bush administration for a weaker dollar, the organization has recently shifted its strategy to try to persuade the Bush administration to take action against Asian countries including China, Japan, Taiwan, and South Korea which, the organization claims, all maintain artificially low currencies. American companies with their stronger dollar have had difficulty exporting products, while the Asian economies are able to capitalize on their weak currencies and export more. Both Clinton and Bush have more or less allowed market forces to determine the value of the dollar, while Asian countries, according to the organization, intervene in the markets to manipulate exchange rates and provide their countries with an unfair trading advantage. Does the Coalition for a Sound Dollar have a case? In your opinion, should the U.S. put pressure on the Asian economies to raise the value of their currencies? Why or why not? What would be the short-term effect on American companies if Japan allowed its yen to rise relative to the dollar? What are the implications of a stronger yen in the longer term? How will it help Canadian exports if the Asian currencies fall against the U.S. dollar? Why have both Clinton and Bush maintained a policy of allowing market forces to determine the value of the dollar? What are the implications of their policy for international businesses? Source: "U.S. Manufacturers Aim Ire at Asia," The Wall Street Journal, 1/24/03, p. A2.

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