Ideas for Walmart Currency Crisis

Ideas for Wal-Mart Case:

1. Why is Yuan so important?

• Most export is from China.

• If Yuan appreciate, less export, more competitive from importing from other locations than China.

• Yuan is pegged too much currency, if floating happens, a lot of business might be in jeopardy.

• China has a lot of US Bonds and Treasuries, which will affect directly if US Dollars Appreciate.

• Yuan is not in high demand, so they use US Dollars and hold a lot, which leaves them in control and lower demand, when they need to convert back to Yuan, so Yuan is in demand and appreciate.

• Managed Float by government or fixing rate.

• Government Intervention for win-win situation.

• Currency Risk for free market float.

2. if you are CEO of Wal-Mart and talking to US Government, what would you say?

• Cannot appreciate, most of all goods are import from China.

• We can never earn economies of scale because production cost and labor in US market is too expensive.

• May need government to do forwards contract and give time to deal with floating rate.

• Monitor government spending and suggest holding Chinese Yuan to balance out currency.

• Government Lobby.

• Fixed Exchange rate policy.

• Managed Policy.

• Raising interest in US to attract foreign funds for US to appreciate.

• IF they float Yuan currency, ask them to support for the loss incurred.

• Suggest advantages for fixed rate over free floating market.

• China has absolute advantage on production cost and labor.

• Lose of huge amount of jobs, if Yuan appreciate.

• May come to agreement to produce some and import some that gain win win for US.

• Porter Five Force model identify the other markets and competitors if they decide to do in house.

3. Should Wal-Mart do anything about trade deficit?

• No. Because they earn profit from import from China.

• In case...