Discuss whether the intervention effort by the Thai government constitute direct or indirect intervention.
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, please 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?
Will U.S. inflation rate go up or down, or remain unchanged? Please justify your answer.
• 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?
Answer preview Discuss whether the intervention effort by the Thai government constitute direct or indirect intervention.
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