Pertaining to the scenario in which the Thai government decided to peg their currency (the Thai Baht) to the U.S. dollar, Thailand could possibly experience inflation due to the artificial valuation of their currency to a more established currency, (Moreno, R., 2000). That being said, the United States would not experience inflation as a result of this agreement. In fact, the United States would benefit because the Thai government would have to invest in the United States stock market and the Thai stock market, which would invariably help the United States economy, (Moreno, M., 2000). Relating to import/exports and how the currency peg would effect them, there is very few evidential links that state that there is increased international trade between the two countries solely based on a currency peg, (Moreno, M., 2000). That being said, there will surely be an increase in commerce between the two countries due to the natural link that transpires relating to their economies being more closely related due to their closer economic proximity than previously.
A floating exchange rate transpires when a country decides to compare the value of their currency based on the supply and demand of other currencies, (Blade Cases, 2016). In the case of Blade, a floating exchange rate is dangerous for their export interests in Thailand because as the value and/or demand of the Thai Baht decreases, Blade will lose a substantial profit that is caused by many foreign direct investors pulling their funding from the Thai economy, (Blade Cases, 2016). This puts Blade at a major disadvantage if they decide to continue their current framework in Thailand because their profit margins are subject to the whim of the Thai economy.
e-Activity 1:
The Big Mac Index, although an accidental success that was designed by the Economist, has become a standard of comparing the purchasing power parity among countries. It is because of this that it is great indicator of the comparison between the cost of living in Thailand versus the United States. For example, a Big Mac currently is undervalued in Thailand by 25-50%, (The Big Mac Index, 2016). In order to see the Big Mac Index at work, a Fortune 500 company has been chosen is Disney. The example of a Mickey Mouse stuffed animal will be used in comparison to the Big Mac Index. When considering how a Big Mac is 25-30% undervalued in Thailand, the cost of the stuffed animal of Mickey Mouse will also be undervalued by that price if purchased in Thai Baht. The key to exploiting this advantage is to bring United States Dollars to a country like Thailand to go shopping because the consumer will not only benefit from the exchange rate that is surely in favor of the United States Dollar, but also they will benefit from the lower index of living that exists as demonstrated by the Big Mac Index, (The Big Mac Index, 2016).
e-Activity 2:
When multinational companies are considering how to eliminate the intermediary such as the bank, there are several options to consider. One option is to work with a currency exchange company that provides substantial savings from a bank because it provides lower transactional fees and also provides a better exchange rate that is superior to the daily banking rate between currencies. Additionally, investing in creating a centralized depository can greatly benefit companies in that they save money on making several banking transactions and merely transfer money between their subsidiaries. This is a great option to consider in order to avoid banking fees altogether.
References
Blades Cases. (2016). Provided by Professor.
Moreno, M. (2000). Does Pegging Increase International Trade? FRBSF Economic Letter. Retrieved from: http://www.frbsf.org/economic-research/publications/economic-letter/2000/september/does-pegging-increase-international-trade/
The Big Mac Index. (2016). The Economist. Retrieved from: http://www.economist.com/content/big-mac-index
