International Finance

Case Study 2; Small Business Dilemma; Book Chapter2, Case study 2 p 67

Developing a multinational sporting goods industry

BSM412 International Financial Management

Case study 2

January 24, 2011

Question 1; Identify the factors that affect the current account balance between Ireland and the United Kingdom. Explain how each factor may possibly affect the British demand for the basketballs that are produced by the Sports Exports Company.

Current account balance concerns with the international trade. Meaning, all interactions affected by; imports, exports, payments for goods and/or services. A current account balance, in country level, may be positive or negative. There are certain factors that affect the current account balance between two countries, as in our case, Ireland and UK and these are country’s inflation rate, its national income, governmental restrictions implemented, the exchange rates between two currencies, and the interaction of the above as well.

In a further analysis, we have to say that in case of Ireland’s inflation rate increases compared to this of UK then the current account will decrease, other things held equal. Such will mean that it will be better for customers to buy basketballs from the UK than from Ireland and eventually due to the vast differences, Ireland’s export will decline. Logan will not be able to afford the cost that inflation will implement consequently to the exported product. Of course the effects work vice versa if Ireland’s inflation rate decreases comparing to UK.

The current account will decrease if the Ireland’s national income increases in a higher level than this of UK. The consumption, however, will in this case increase in Ireland. In the opposite occasion, thus, if UK’s income increases then exports will be favorable since customers will consume more and market will import larger quantities.

Governmental restrictions such as tariffs, quotas or sanctions cannot be implemented in our case since both...