Government Intervention and its Impact on Blades Inc. in the Thai Market

by | May 28, 2024 | finance

 

Objectives and Learning Outcomes:
The main objective of the assignment is to develop the knowledge of global and cultural systems
and issues. Upon successful completion of this course, you will be able to identify and describe
major global issues in financial markets and the effects of country-level risk.
Instruction:
Suppose that, as a financial analyst, you are tasked with evaluating Blades, a U.S. manufacturer of roller blades. In the assignment, you provide the chief financial officer (CFO) of Blades a better
understanding of the process of government intervention and its impact on Blades’ international business. The company generates most of its revenue and incurs most of its expenses in the United
States. However, it has recently begun exporting roller blades to Thailand. You will provide a report that includes your assessment of the Thai government intervention and its impact on the exchange rate of baht. You are asked to analyze the following issues and provide solutions to Blades.
Discuss whether the intervention effort by the Thai government constitute direct or indirect intervention.
Discuss whether the intervention by the Thai government constitute sterilized or nonsterilized intervention and the difference between the types of intervention.
Which type of government intervention (sterilized vs. nonsterilized) do you think would be more effective in increasing the value of the baht? Once you choose one of the types, justify your answer.
If the Thai baht is virtually fixed with respect to the dollar, what would happen to the U.S. levels of inflation?
What are some of the potential disadvantages for Thai levels of inflation associated with the floating exchange rate system that is now used in Thailand?
What do you think will happen to the Thai baht’s value when the swap arrangement is reversed later?
Do you have any other suggestions to Mr. Holt with regard to Blades’ business in this circumstance?

Blades, Inc.:
Blades has an agreement with Entertainment Products, Inc., a Thai importer, for a 3-year period. According to the terms of the agreement, Entertainment Products will purchase 180,000
pairs of “Speedos,” Blades’ primary product, annually at a fixed price of 4,594 Thai baht per pair. Due to quality and cost considerations, Blades is also importing certain rubber and plastic
components from a Thai exporter. The cost of these components is approximately 2,871 Thai baht per pair of Speedos. No contractual agreement exists between Blades, Inc., and the Thai exporter.
Consequently, the cost of the rubber and plastic components imported from Thailand is subject not only to exchange rate considerations but to economic conditions (such as inflation) in Thailand as well. Shortly after Blades began exporting to and importing from Thailand, Asia experienced weak economic conditions. Consequently, foreign investors in Thailand feared the baht’s potential weakness and withdrew their investments, resulting in an excess supply of Thai baht for sale. Because of the resulting downward pressure on the baht’s value, the Thai government attempted to stabilize the baht’s exchange rate. To maintain the baht’s value, the Thai government intervened in the foreign exchange market. Specifically, it swapped its baht reserves for dollar reserves at other central banks and then used its dollar reserves to purchase the baht in the foreign exchange market. However, this agreement required Thailand to reverse this transaction by exchanging
dollars for baht at a future date. Unfortunately, the Thai government’s intervention was unsuccessful, as it was overwhelmed by market forces. Consequently, the Thai government ceased
its intervention efforts, and the value of the Thai baht declined substantially against the dollar over a 3-month period. When the Thai government stopped intervening in the foreign exchange market, Ben Holt, Blades’ CFO, was concerned that the value of the Thai baht would continue to decline indefinitely. Since Blades generates net inflow in Thai baht, this would seriously affect the company’s profit
margin. Furthermore, one of the reasons Blades had expanded into Thailand was to appease the company’s shareholders. At last year’s annual shareholder meeting, they had demanded that senior
management take action to improve the firm’s low profit margins. Expanding into Thailand had been Holt’s suggestion, and he is now afraid that his career might be at stake. For these reasons,
Holt feels that the Asian crisis and its impact on Blades demand his serious attention. One of the factors Holt thinks he should consider is the issue of government intervention and how it could
affect Blades in particular. Specifically, he wonders whether the decision to enter into a fixed agreement with Entertainment Products was a good idea under the circumstances. Another issue
is how the future completion of the swap agreement initiated by the Thai government will affect Blades. To address these issues and to gain a little more understanding of the process of government intervention, Holt has prepared the following list of questions for you, Blades’ financial analyst, since he knows that you understand international financial management

 

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Answer

Sample Answer

 

Government Intervention and its Impact on Blades Inc. in the Thai Market

In the world of international business, the dynamics of government intervention play a crucial role in shaping the economic landscape for companies operating globally. Blades Inc., a U.S. manufacturer of roller blades, ventured into the Thai market with high hopes but faced challenges due to the Thai government’s intervention efforts. This essay aims to analyze the impact of government intervention on Blades Inc.’s international business in Thailand and provide recommendations for navigating through such complexities.

Thesis Statement

The Thai government’s intervention, aimed at stabilizing the baht’s exchange rate, had direct implications on Blades Inc.’s operations in Thailand, impacting its profitability and strategic decisions. Understanding the nature of government intervention, whether sterilized or nonsterilized, is crucial for evaluating its effectiveness and predicting future outcomes for Blades Inc. in the Thai market.

Analysis of Government Intervention

1. Direct vs. Indirect Intervention
The Thai government’s actions to stabilize the baht’s value through foreign exchange market interventions can be classified as direct intervention. By actively swapping baht reserves for dollar reserves and purchasing baht in the market, the government directly influenced the exchange rate, affecting Blades Inc.’s cost structure and revenue in Thailand.

2. Sterilized vs. Nonsterilized Intervention
The intervention by the Thai government can be categorized as nonsterilized intervention. This type of intervention involves offsetting the impact on the money supply to prevent inflation. The government’s actions aimed to stabilize the baht without affecting domestic money supply significantly.

3. Effectiveness of Intervention
In increasing the value of the baht, nonsterilized intervention may prove more effective for the Thai government. By directly influencing the exchange rate without impacting domestic inflation levels, the government can achieve its objective of maintaining a stable currency, which is essential for Blades Inc.’s pricing agreements and cost considerations.

4. Impact on U.S. Inflation
If the Thai baht is virtually fixed with respect to the dollar, any fluctuations in the baht’s value can impact U.S. levels of inflation. A strong baht could lead to lower import costs for Blades Inc., potentially contributing to lower inflation in the U.S.

5. Disadvantages of Floating Exchange Rate
For Thailand, adopting a floating exchange rate system can expose the economy to risks of inflation due to currency fluctuations. This volatility can disrupt trade agreements like the one between Blades Inc. and Entertainment Products, affecting cost structures and profit margins.

6. Future Baht Value and Recommendations
When the swap arrangement is reversed, there may be further depreciation of the Thai baht against the dollar, posing challenges for Blades Inc.’s profitability in Thailand. Holt should consider renegotiating pricing agreements and hedging strategies to mitigate currency risks and protect the company’s financial interests.

Conclusion

In conclusion, government intervention in foreign exchange markets can have far-reaching implications for multinational companies like Blades Inc. Understanding the nature and effectiveness of such interventions is essential for strategic decision-making and risk management in international business operations. By addressing the challenges posed by exchange rate fluctuations and government policies proactively, Blades Inc. can navigate through uncertainties and sustain its growth in the global market.

Through a comprehensive analysis of government intervention and its impact on Blades Inc., this essay provides insights into the complexities of international financial management and offers strategic recommendations for addressing challenges in the Thai market. As Blades Inc. continues to expand its presence globally, proactive risk management and adaptive strategies will be key to ensuring long-term success amidst dynamic economic environments.

 

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