Module 1, part 1

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En provenance du cours de University of New Mexico

International Business II

215 notes

University of New Mexico

International Business II

215 notes

This course, Introduction to the Global Business Environment II, focuses on managing organizations in the international economy. Building on Introduction to the Global Business Environment I, this second course focuses on organizational level and management issues in international settings. The course prepares students with practical as well as research-based knowledge and skills necessary to successfully operating an organizational across borders. This course utilizes an inquiry based approach to understanding managing in the Global Business Environment and answering the following questions: 1. What are Foreign Currencies and how are Exchange Rates Determined? 2. How should you organize your business abroad? 3. How do you adapt your product or service for the international market? 4. What is it like to work abroad and how do you manage expatriates? 5. How to start, operate and grow a small or entrepreneurial business in the global environment? 6. What is the Current State of the Global Business Environment? This inquiry-based approach creates reflective opportunities for students to better understand managing and leading organizations in the global environment in which businesses operate. Lectures are delivered in an engaging manner which encourages reflection and inquiry. Course lectures will be delivered by the instructor in both Spanish and English.

À partir de la leçon

Week 1

What are Foreign Currencies and how are Exchange Rates Determined?

Module 1, Intro6:49

Module 1, part 15:08

Module 1, part 26:29

Module 1, part 38:49

Module 1, part 410:17

Module 1, part 510:41

Module 1, part 68:54

Rencontrer les enseignants

Doug E Thomas, Ph.D.
Professor
International Management, Anderson School of Management

Hi guys, welcome back to Global Business Environment Course 2.

We're in module one and this will be part one of that module.

Recall that we're asking the question, what is the impact of foreign currency on

the global business environment in this particular module.

Last time we introduced the idea that when we talk about exchange rates and

foreign currency, we're talking about a market.

And I showed you this picture of the U.S. dollar.

This is actually the franc from the small area of the world called Guinea.

And this is you know, a stack of these bills equals one U.S. dollar.

A lot of people think, by the way, when they see this that this means that

the dollar must be much more highly demanded than this franc from Guinea.

Or they look at this picture like this and see these prices and

they say, oh, if one U.S. dollar equals 40 or

20 of something that must mean that it's more valuable.

Actually one of the things that's really important for

me to get across to you in this module is you can't look at the numbers or

the denomination of any currency and take anything away from it.

We could say that one U.S. dollar equals ten million Japanese yen.

And we wouldn't know anything about the value of the yen or

the value of the U.S. dollar.

Why is that?

Think about that for a second.

The reason that is, is because we don't know the prices in each of those markets.

We don't know the cost of living.

We don't know the value of goods and services.

And so it's only helpful to think about currencies and

exchange rates in the context of, and denominations like $1 equals ten million

Japanese yen, in the context of some, prices or some index.

Another thing that I like to make very clear in all my classes is when we look

at, at a currency like this franc from Guinea and the US dollar, it only

makes sense to say one of the currencies is increasing in strength or weakening,

et cetera, compared to the other in that context of the two currencies.

Sometimes people will say, oh, the U.S. dollar is very strong and

that doesn't mean very much because the U.S. dollar might be strong against five

other currencies in the world and be very weak against another hundred currencies.

And so it's not very helpful to say that a currency is strong or weak.

You can only talk about it in terms of one currency and another.

And so, how do we, how do we determine this price?

What, what factors determine it?

well, one thing you need to, remember is the market for

foreign currency is driven by demand and supply.

Let's talk about demand for a minute.

Why and how do we as individuals show our demand for cars?

When does that get expressed, you might say.

Let me show my picture again of cars.

Well, it's when we go into the market and make a purchase.

And every day as a lot of individuals make a lot of purchases, that's how the,

the price gets determined.

Well, in, in many places in the world that have exchange rate systems that allow for

for markets to work to some degree, you see the same factors.

What I like to emphasize is that the supply and

the demand of any currency is determined by us.

If I, living in the United States, buy some cheese, at a local market,

that was imported from Italy, or I buy a toy at a local store that was made in

China, even though I'm paying at my store, my local market in U.S. dollars, I'm

demanding with those purchases the foreign currencies of those foreign countries.

Even though I never see that transaction take place, somewhere along the way,

there are transactions made so that the individuals who were involved in making,

assembling, the companies that were involved in exporting that product,

get paid in their currency.

Because what they want is a currency they can use in their home country.

So if I buy that Chinese-made toy, somewhere along the line that toy is

involved in transactions that are denoted in the Chinese yuan.

And so therefore if I buy more stuff and

we all buy more things from China, we're expressing demand for the Chinese yuan.

So what we're going to do next time is go through that a little more

formally looking at these graphs and try to understand how this market works.

And how we express this demand for foreign currency through our purchases of

imports and exports and tourism and other things.

See you back next time.

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