Value Chain; Currency Fluctuations In 2011–2013, Brazil’s economy was flourishing in manydimensions, except for a significant and worsening trade deficit with China in 2011–2012. The rootof the problem was that the value of the Brazilian currency (the real) had increased by 10% relativeto the Chinese currency (the yuan) over the prior year. The increased value of the real meant thatChinese imports were relatively cheap and Brazilian exports were relatively expensive in currencyfluctuation terms. The excess of imports over exports thus heightened the trade deficit. An analysis ofthe matter identified the relatively high Brazilian interest rates (at almost 11% throughout this period)that attracted foreign investors.In contrast to the above scenario, the value of the real fell 120% relative to the yuan from January2012 to January 2016. From January 2016 to the time of this writing (June 2017), the real has risenapproximately 30% from its low in January 2016. But the real is still at historical lows. Some say thereal was overvalued, and the reduction helped to get the currency exchange back into balance. Otherssay the reduction in value was due to capital outflows from Brazil and a loss of confidence in thecountry’s economy.Required Briefly explain how you would expect the currency fluctuation issues facing Brazil to affectthe value chains of Brazilian companies
Value Chain; Currency Fluctuations In 2011–2013, Brazil’s economy was flourishing in many
dimensions, except for a significant and worsening
of the problem was that the value of the Brazilian currency (the real) had increased by 10% relative
to the Chinese currency (the yuan) over the prior year. The increased value of the real meant that
Chinese imports were relatively cheap and Brazilian exports were relatively expensive in currency
fluctuation terms. The excess of imports over exports thus heightened the trade deficit. An analysis of
the matter identified the relatively high Brazilian interest rates (at almost 11% throughout this period)
that attracted foreign investors.
In contrast to the above scenario, the value of the real fell 120% relative to the yuan from January
2012 to January 2016. From January 2016 to the time of this writing (June 2017), the real has risen
approximately 30% from its low in January 2016. But the real is still at historical lows. Some say the
real was overvalued, and the reduction helped to get the currency exchange back into balance. Others
say the reduction in value was due to capital outflows from Brazil and a loss of confidence in the
country’s economy.
Required Briefly explain how you would expect the currency fluctuation issues facing Brazil to affect
the value chains of Brazilian companies
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
