The  Economist Insider  dealing

Article  Title  and  Date  of  the  Article         The  Economist     “Insider  dealing:  euro  outs  fear  that  euro  ins  might  do  them  down”   October  17,  2015             Summary             This  article  posted  as  a  special  news  report  by  The  Economist,  is  focused  on   the  Eurozone  and  European  Union,  and  how  they  are  experiencing  some  problems   that  might  hurt  both  the  euro  currency  and  relations  with  non-­‐-­‐-­‐euro  zone  countries.   At  the  moment,  in  Europe  there  are  two  types  of  observers:  the  Europhiles  and   Euroskeptics.  The  Europhiles  are  those  who  admire  Europe  and  favor  the   participation  of  the  European  Union,  while  on  the  other  side  of  the  spectrum  are  the   Euroskeptics,  who  are  those  who  are  opposed  to  increasing  the  powers  of  the   European  Union.               Currently,  the  alarming  political  issue  that  has  been  growing  in  Europe  is  the     negative  relationship  between  those  countries  that  belong  to  the  European  Union   and  Eurozone,  against  those  who  are  members  of  the  European  Union  but  not  the   Eurozone.  The  argument  here  is  that  those  members  belonging  to  the  Eurozone   have  been  meeting  together,  while  excluding  non-­‐-­‐-­‐Eurozone  members  and  making   decisions  such  as  bails,  which  affect  all  countries  within  the  European  Union.  The   Eurozone  countries  believe  that  that  only  those  countries  that  are  members  of  the   Eurozone  should  be  allowed  to  voice  their  opinions  and  make  decisions  on   everything  regarding  the  euro,  since  they  are  the  ones  directly  affected  by  it.  On  the     other  hand,  the  non-­‐-­‐-­‐Eurozone  countries  feel  like  the  euro  members  are  “ganging  up”   on  them,  meaning  that  they  feel  like  those  countries  in  the  Eurozone  are  making   decisions  regarding  their  own  interests,  and  not  the  collective  interests  of  all   members  of  the  European  Union.               Association  to  specific  chapter  material  and  concepts           2.4  A  Single  Currency  for  Europe:  The  Euro  (40)     Chapter  2  discusses  the  global  financial  environment  including  the  European  Union,   the  Eurozone  and  the  impact  of  the  Euro  in  the  markets.     10.1  Types  of  Foreign  Exchange  Exposure  (272)     Chapter  10  introduces  the  various  types  of  exposure  to  foreign  currency  fluctuations     That  firms  face.  Political  problems  as  those  seen  from  the  article  can  cause   major  currency  fluctuations  in  the  euro  exchange,  which  is  a  concern  for   companies  conducting  international  business  using  euros.


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Concepts       Euro  –  A  single  new  currency  unit  adopted  by  the  11  participating  members  of   the  European  Union’s  European  Monetary  System  in  January  1999,  replacing   their  individual  currencies.     European  Union  –  The  official  name  of  the  former  European  Economic   Community  as  of  January  1,  1994.     Eurozone  –  The  countries  that  officially  use  the  euro  as  their  currency.     Translation  exposure  –  measures  changes  in  the  value  of  outstanding  financial   obligations  incurred  prior  to  a  change  in  exchange  rates  but  not  due  to  be  settled   until  after  the  exchange  rates  change.  Thus,  it  deals  with  changes  in  cash  flows   that  result  from  existing  contractual  obligations.     Translation  exposure  –  is  the  potential  for  accounting-­‐derived  changes  in   owner’s  equity  to  occur  because  of  the  need  to  “translate”  foreign  currency   financial  statements  of  foreign  subsidiaries  into  a  single  reporting  currency  to   prepare  worldwide  consolidated  financial  statements.     Operating  exposure  –  also  called  economic  exposure,  competitive  exposure,  or   strategic  exposure,  measures  the  change  in  the  present  value  of  the  firm  resulting   from  any  change  in  future  operating  cash  flows  of  the  firm  caused  by  an   unexpected  change  in  exchange  rates.  The  change  in  value  depends  on  the  effect   of  the  exchange  rate  change  on  future  sales  volume,  prices,  and  costs.     Currency  risk  –  is  the  variance  in  expected  cash  flows  arising  from  unexpected   exchange  rate  changes.

Reasons  for  selection

The  reason  I  chose  this  article  is  because  it  demonstrates  how  countries  have   to  work  together  for  an  improved  global  environment.  If  they  do  not,  they  will   experience  greater  problems  in  their  economies,  businesses,  and  investments  both   in  the  domestic  and  global  markets.  Additionally,  chapters  10-­‐-­‐-­‐18  cover  extensively   “foreign  exchange  risk  management”  and  this  article  is  a  perfect  example  in  which   we  can  see  the  concepts  we  learn  in  class,  be  applied  in  the  real  world.

The  issues  discussed  in  the  article  have  caused  greater  currency  exposure  in   the  global  markets.  Basically,  the  euro  currency  is  suffering  as  foreign  investors   begin  doubting  its  stability,  and  start  regarding  it  as  a  riskier  currency  than  it  was   before.  In  addition  to  this,  many  businesses  and  investors  in  the  European  Union   have  been  experiencing  losses  from  the  low  euro  currency  values  in  recent  times.



Important  points  or  lessons  learned  from  this  article

An  important  point  that  the  article  makes  is  that  even  though  there  are  many   issues  at  the  moment  between  Euro  countries  and  non-­‐-­‐-­‐Euro  countries,  one  thing   that  both  opposing  sides  (the  Europhiles  and  Euroskeptics)  can  both  agree  on  is  that   if  the  euro  zone  does  survive,  it  would  have  to  make  arrangements  for  a  stronger   political  integration,  bail-­‐-­‐-­‐out  fund,  an  establishment  of  a  central  bank  that  acts  as  a   lender  of  last  resort,  and  an  improved  and  proper  banking  union.

The  most  important  lesson  to  take  away  from  this  article  is  the  fact  that  we   can  apply  some  of  the  concepts  learned  in  International  Financial  Management  such   as  how  exchange  risks  and  exposures  can  be  linked  to  the  economic  and  political   situations  of  countries.  We  can  clearly  see  it  portrayed  in  this  article  that  speaks   about  the  political  and  financial  management  issues  that  countries  in  the  European   Union  should  try  to  solve  in  order  to  succeed.

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