Author Question: In a short essay, describe the two main types of foreign exchange management used today. Provide ... (Read 52 times)

Metfan725 · **on:** Jul 7, 2018

In a short essay, describe the two main types of foreign exchange management used today. Provide examples of nations which use each type of system.

What will be an ideal response?

Question 2

Collaborative ventures became a popular entry strategy in the 1980s. Describe the two major types of international collaborative ventures and explain the benefits of this internationalizatio n approach.

What will be an ideal response?

abro1885 · **Reply #1 on:** Jul 7, 2018

Answer to Question 1

a. Floating Exchange Rate SystemUnder this system, governments refrain from systematic intervention and each nation's currency floats independently or within a group, according to market forces. Major world currenciesincluding the Canadian dollar, the British pound, the euro, the U.S. dollar, and the Japanese yenfloat independently on world exchange markets. Their exchange rates are determined daily by the forces of supply and demand.
b. Fixed Exchange Rate SystemThe value of a currency is set to the value of another (or the value of a basket of currencies), at some specified rate. The system is sometimes called a pegged exchange rate system and is the opposite of the floating exchange rate system. As the reference value rises and falls, so does the currency pegged to it. Many developing economies and some emerging markets use this system today. For example, China pegs its currency to the value of a basket of currencies, and Belize pegs the value of its currency to the U.S. dollar. To maintain the peg, the governments of these countries intervene in currency markets to buy and sell dollars and other currencies, in order to maintain the exchange rate at a fixed, preset level.

Answer to Question 2

A collaborative venture is a form of cooperation between two or more firms. Collaborative ventures are classified into two major types: equity-based joint ventures that result in the formation of a new legal entity; and project-based strategic alliances that do not require equity commitment from the partners but simply a willingness to cooperate in R&D, manufacturing, design, or any other value-adding activity. In both cases, collaborating firms pool resources and capabilities and share risks to carry out activities that each might be unable to perform on its own.