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    Exchange Rates Research

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    I need help completing the following task. I've attached the information needed for this particular assignment.

    You are the chief executive officer of a multinational's subsidiary in a developing host country. The subsidiary has been in business for about eight years, making electric motors for the host country's domestic market, with mediocre financial results. Before you left the home country a month ago, you were told to make the subsidiary profitable or consider closing it.
    After a month in the host country, you have discovered that it is running a worsening balance of payments (BOP) deficit and
    that the government officials are very concerned about the situation. They are considering various measures to stanch or reverse the deficit flow. What measures might they adopt? Given that you would prefer to keep the subsidiary open, since it employs locals and contributes to the country's economy in other ways also, can you think of some ways your company might profit from or at least minimize the damage of these potential measures?

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    Solution Preview

    When the real exchange rate depreciates, a country's balance of trade deficit will generally improve. This is because its exports become relatively cheaper relative to domestic goods in foreign countries. When these countries purchase the exports, the country's trade balance improves.

    Since the name of the host country is not mentioned in this question, the attached data isn't relevant. We only need know that the government wants to improve the balance of payments. If the host country takes steps to decrease its exchange rate, this will cause the ...

    Solution Summary

    How international trade affects exchange rates