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International Business Exchange Rates

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1. Imagine that Canada, the United States and Mexico decide to adopt a fixed exchange rate system. What would be the likely consequences of such a system for (a) international business and (b) the flow of trade and investment among the three countries?

2. Why has the global capital market grown so rapidly in recent decades? Do you think this growth will continue throughout the next decade? Why?

3. List the options for raising money on the global capital markets and discuss the pros and cons for each option.

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The solution considers a fixed exchange rate system for Canada, US and Mexico.

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1. Imagine that Canada, the United States and Mexico decide to adopt a fixed exchange rate system. What would be the likely consequences of such a system for international business and the flow of trade and investment among the three countries?

This would lead the governments to exert a strong discipline on domestic firms and employees to keep their costs under control in order to remain competitive in international markets. This also helps the governments maintain low inflation - which in the long run should bring interest rates down and stimulate increased trade and investment. However this may also lead to severe financial crises since a fixed rate is difficult to maintain in the long run. For ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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