The state of the economy is a vital aspect in a business sector since it contributes to the progress of an entity. Currently, the economy is stable and will expand marginally. This will be good for our business which has a contract to import raw materials from China. This deal will not be affected owing to the manner in which it was drafted as well as the prevailing economic conditions.
The economy has been improving marginally after the recession. There are various factors that are contributing to this fact, such as interest rates, inflation and policies, adopted by nations globally to shield their economies (Itō 24). Nations have adopted policies which aim at cushioning their economy against stagnant international trade and the high cost of credit, making it challenging for businesses. Business is triggered by consumption, however, consumption has contracted owing to the high credit cost.
Credit is the key driver of consumption. Subsequently, high credit cost limits lending which reduces consumption. Owing to these factors, the international business being a key component of the economy is stagnating. Thus, the economy will improve marginally that will be characterized by a drop in unemployment, inflation rate and interest rates.
The above developments will characterize short-term progress. However, it is difficult to predict the long-term economic trend although there seem to be minimal improvements. Policy makers in most countries aim at shielding their economies from the impacts of high cost of credit and inflation.
This will improve the conditions in which we undertake business. Government will also want to boost consumption that can be accomplished by a deficit budget. On the flip side, such a budget may increase recurrent expenditure, depending on the nature of the borrowed funds (Jossa and Musella 58).
In America, the unemployment extent will stagnate or reduce marginally to about 7.4% (Bureau of labour statistics). The marginal decrease will boost consumer confidence. Improvement in consumer confidence is vital since the American economy is highly dependent on speculation.
he above progress will have minimal implications on the importation deal, which Blakleyovich Enterprise is undertaking. Nevertheless, such improvements will strengthen the American currency. Blakleyovich Enterprise’s revenues that are sensitive to an unemployment level will improve marginally.
The interest rate will be maintained at zero, owing to the unemployment rate. Consequently, there will be a minimal interest to pay for the credit acquired. The key objective of zero-rating interest rates is to encourage borrowing. Blakleyovich Enterprise’s profitability will continue to improve.
The gross domestic product (GDP) has been improving at rate of about 2% (Leondis). During this year, the GDP will expand at a rate close to 3% (US economic forecast). The expansion in this factor which denotes the gross national output will be indicative of an improving economy.
This will further improve international trade. America’s imports from China by far surpass its exports to that nation. The trade deficit is about $300 billion (Yankovich 98). Accordingly, there should be a higher demand for the Yen, which would increase its value (Hufbauer, Yee and Ketki 216). Nonetheless, the Chinese government has hindered the upsurge in the Yen’s value to shield its manufacturers’ earnings.
Devaluation of the Yen has ensured high returns for China based manufacturers exporting to America. The devaluation of the Yen will reduce the cost of American imports from China. In the above case study, the Blakleyovich Enterprise will pay a reduced amount of dollars since they will yield more Yens owing to its devaluation. Overall, the devaluation of the Yen has reduced the cost of its commodities. Nonetheless, Chinese manufacturers have been the key beneficiary.
The American economy has suffered significantly, owing to the poor trade balance. The trade balance has favoured China since there is a large market for its products, as such boosting its foreign currency reserves. The fixed price contract is a shrewd business move which will shield the company from the change in value of the currency involved. The dollar-yen exchange rate will change marginally, due to the policy adopted by China and the stabilizing value of the American currency (Mann,and Katharina 176).
Assumptions and factors
The above deal seems to be safe owing to the manner in which Blakleyovich Enterprise pursued it. Its cost will not change and the credit facility acquired have low interest rates. Therefore, the change in Blakleyovich Enterprise’s profitability level will be minimal. In the above analysis, there are several assumptions.
The unemployment rate will not reduce past 6.5%, which would allow the government to increase interest rates. Increase in the above rates would increase Blakleyovich Enterprise’s overheads. Additionally, this analysis has assumed that the Chinese policy on its currency will remain the same for the foreseeable future. The policy adopted will have some repercussions on the trade between these two nations. However, this is unlikely since China wants to protect its manufacturers (Brooks and Warson 131).
Recommendations to the directors
The decline in unemployment and rising GDP denotes the fact that the economy is improving. This is likely to translate into an increase in revenues for this entity. However, managers should be cautious in their policy adoption. The profitability of the Blakleyovich Enterprise will be stable or may experience a marginal surge.
The entity’s policies have so far been shrewd, but the entity should capitalize on the zero-rating of then interest rate. The interest rate will not rise soon since the unemployment must fall below the 6.5% level for any increase in interest rate to occur.
This will provide Blakleyovich Enterprise with an appropriate window to undertake projects which may require acquisition of credit facilities. Importation of raw materials from China will enable the entity to reduce its cost, however, it will contribute to the ever expanding trade deficit. Overall, the economic environment favours this organizations (Morrison, Marc, Jonathan,Wayne, Wayne and Jonathan 76).
Brooks, Lucy, and Warson, Julie. China’s Currency: Economic Issues and Background. New York: Nova Science Publishers, 2011. Print.
Bureau of labour statistics. Economy at a glance. April 12, 2013. Web. April 13, 2013.
Hufbauer, Gary, Yee, Wong, and KetkiSheth. Us-china Trade Disputes: Rising Tide, Rising Stakes. Washington, DC: Institute for International Economics, 2006. print.
Itō, Takatoshi. Exchange Rate Movements and Their Impact on Trade and Investment in the Apec Region. Washington, DC: International Monetary Fund, 1996. Print.
Jossa, Bon, &Musella, Mark. Inflation, unemployment, and money: Interpretations of the Phillips curve. Cheltenham, UK: E. Elgar, 1998. Print
Leondis, Alexis. Gross Raises U.S. Economic Growth Forecast to 3% in 2013. March 8, 2013. Web. April 13, 2013.
Mann, Catherine, and Katharina Plück. Us Trade Deficit: A Disaggregated Perspective. Washington, DC: Peterson Institute for International Economics, 2005. Print.
Morrison, Wayne, Marc,Labonte, Jonathan,Sanford, Wayne, Morrison, Wayne Morrison, and Jonathan Sanford. China’s Currency and Economic Issues. New York: Novinka Books, 2006. Print.
US economic forecast. U.S. Quarterly Forecast of GDP and Key Indicators February 2013. March 31, 2013. Web. April 13, 2013.
Yankovich, Carl. Us Trade Deficit Issues. New York, NY: Nova Science Publ, 2010. Print.