Brazil was seen as one of the world’s fastest-growing developing economies in the 2000–2010 period. What were the foundations of this success?

Why did Brazil’s economic growth falter after 2012? How much of the damage was self-inflicted, and how much
was due to factors outside of the country’s control?

Questions:
1. National Differences
Answer the case study questions for the following in the textbook (at end of chapters):
Chapter 2 Closing Case and Chapter 3 Closing Case
Develop a 2 to 3-page paper (in total, not for each case) answering these discussion questions.
2. Trade Papers
Develop a 3–4-page paper (double-spaced) that summarizes and provides an analysis of U.S. trade history from
1790 to 2020. Discuss the major legislation that affected trade, any trade barriers, the attitude (political) toward
trade, and the various trade agreements.
3. International Finance Cases
Answer the case study questions for the following case studies in the textbook (at end of chapters):
Chapter 10 case and Chapter 11 case
Develop a 2–3-page paper (in total, not for each case) answering these discussion questions.
4. International Finance Cases
Answer the case study questions for the following case studies in the textbook (at end of chapters):
Chapter 10 case and Chapter 11 case
Develop a 2–3-page paper (in total, not for each case) answering these discussion questions.
5. Global Business Strategy
Answer the case study discussion questions for the following cases (at end of chapters):
Chapter 15 case, Chapter 17 case, and Chapter 18 case
Develop a 3–4-page paper (in total, not for each case) answering these discussion questions.
CLOSING CASE 2
Transformation in Saudi Arabia
The desert kingdom of Saudi Arabia is a rarity in the modern world, an absolute monarchy whose laws are based upon
interpretations of a religious text, the Qur’an, the holy book of Islam. Despite Saudi Arabia’s adherence to an archaic
form of government, the Saudi economy has historically performed well, primarily due to the country’s position as the
world’s largest oil exporter. In 2017, the country’s GDP per capita on a purchasing power parity basis was $54,500, not
far behind the $59,800 GDP per capita of the United States.
The oil sector accounts for around 87 percent of government revenues, 42 percent of GDP, and 90 percent of export
earnings. In times of high oil prices, the Saudi government has used oil revenues to finance a sprawling government
apparatus and to subsidize energy prices, which are among the lowest in the world. In 2014, however, oil prices
collapsed, wiping out an annual government surplus. In 2014, the government deficit ballooned to 15 percent of GDP,
and it hit 20 percent of GDP in 2016, forcing the country to issue more debt and draw down its foreign exchange
reserves. Higher oil prices improved the situation in 2017 and 2018, but the crisis exposed the vulnerability of Saudi
Arabia to a fall in oil prices.To compound matters, Saudi Arabia has a young population—some 70 percent of the population is under the age of
30—and unemployment is high at 12 percent, a combination of factors that many see as a recipe for social unrest. The
high unemployment reflects the fact that while there are jobs available outside of the government sector, most of them
are taken by low-paid foreign workers, who account for 80 percent of the labor force.
To compound matters, Saudi Arabia has a young population—some 70 percent of the population is under the age of
30—and unemployment is high at 12 percent, a combination of factors that many see as a recipe for social unrest. The
high unemployment reflects the fact that while there are jobs available outside of the government sector, most of them
are taken by low-paid foreign workers, who account for 80 percent of the labor force.
Not surprisingly, this vision has met with resistance, particularly from members of the sprawling royal family and
conservative clergy who have benefited from the status quo. To counter this, the crown prince consolidated his power,
removing members of the royal family that disagreed with him and putting his allies in positions of power. This
culminated in an unprecedented shake-up in November 2017 when scores of people, including some of the most
powerful princes in the kingdom, were arrested in a massive anticorruption sweep and jailed in, of all places, Riyadh’s
opulent Ritz Carlton.
Whether this power grab will help the crown prince achieve his goals for remains to be seen. The
government has had to backtrack on plans to reduce subsidies after strong resistance from the population, but it did
introduce a 5 percent value-added tax in January 2018.
Plans for the privatization of Saudi Aramco are under way, and the government budget deficit has been cut in half since
2015—although stronger oil prices have had a lot to do with that. Some of the stricter laws have also been relaxed.
Women are now allowed to drive, and some banned cultural entertainments once seen as decadent, including going to
the cinema, are now allowed. In the long run though, transforming the Saudi economy will require growth in the non-oil
private sector, and that is a challenging task.
Moreover, a scandal surrounding the murder of Washington Post journalist Jamal Khoshoggi by Saudi operatives in
Turkey in October 2018 has at the very least potentially weakened the power of the crown prince. Khoshoggi, a Saudi
citizen and U.S. resident, was a critic of the Saudi regime. Although the Saudi government has claimed that his killing was
the result of a rogue operation gone wrong, few believe that narrative. Many critics suspect that Muhammad bin Salman
was aware of plans to arrest Khoshoggi. Indeed, there is growing evidence that, back in 2017, MBS authorized a secret
campaign to silence dissenters, which included the surveillance, kidnapping, detention, and torture of Saudi citizens.
Khoshoggi was just the highest-profile case in that operation. In the wake of Khoshoggi’s murder, some foreign investors
have reconsidered their ties with the kingdom, and there is little doubt that the fallout from the scandal has made it
more difficult for the Saudis to attract foreign investment.
Case Discussion Questions
A. What long-term economic and political problems does Saudi Arabia face?
B. How might the reforms proposed by Muhammad bin Salman potentially address these problems? Who will gain
from these reforms? Who might object and push back against them?
C. Current plans for Saudi Aramco call for the state-owned oil company to be privatized. An initial public offering
(IPO) is tentatively scheduled for 2021. What are the potential benefits to Saudi Arabia of privatizing Saudi
Aramco? Is there a downside?
D. Is it morally correct for international businesses to invest in a country that denies basic rights to women?
E. Is it morally correct for international businesses to invest in an autocratic country where the current leader has
been implicated in ordering the murder of one of his critics?
CLOSING CASE 3
Brazil’s Struggling EconomyBetween 2000 and 2012, Brazil had one of the fastest-growing economies in the world, expanding by over 5 percent per
year. In 2012, the Brazilian economy temporarily surpassed that of the United Kingdom, making it the world’s sixth-
largest economy. Brazil’s economic gains were partly due to booming international demand for commodities and high
commodity prices. Brazil is a major exporter of coffee, soybeans, and iron ore. The country also benefited from strong
domestic demand, cheap credit in international markets, inflows of foreign capital, tame inflation (important in a
country with a history of hyperinflation), and moderately conservative macro-economic policies. Since 2012, however,
Brazil has been beset by a deep economic malaise. Economic growth decelerated in 2013. The economy entered into a
serious recession in 2014. Economic activity contracted by over 3.5 percent in both 2015 and 2016 before growing by a
sluggish 0.7 percent in 2017 and just 1.1 percent in 2018.
Brazil’s economic problems were partly due to weaker demand for exports and a fall in global commodity prices. In
2010, exports grew 11.6 percent, but that growth stalled in 2012, and in 2014 exports contracted by 1 percent.
However, the country has other deep structural problems that led to a fall in domestic demand. Under the leadership of
President Dilma Rousseff and her left-of-center Workers’ Party, between 2011 and 2014 the government spent
extravagantly on higher pensions and unproductive tax breaks for favored industries. When the economic slowdown hit,
unemployment surged to over 12 percent and tax revenues slumped. As a result of higher outlays and lower tax
revenues, the fiscal deficit swelled from 2 percent of GDP in 2010 to 10 percent in 2015. This pushed up total
government debt to 70 percent of GDP and required higher interest rates to sell government bonds, which were seen as
increasingly risky. The government also raised interest rates to keep inflation in check, which historically has been a
problem in Brazil. Because of high interest rates, the cost of servicing government debt expanded to 7 percent of GDP—
and, of course, higher interest rates, by raising borrowing costs for consumers and businesses, further depressed
economic activity.
Given high interest rates, the only way for the government to get the fiscal deficit under control is to cut spending and
raise taxes. This has not been easy to do. A central problem in Brazil is the country’s pension obligations. The pension
system entitles Brazilians to retire, on average, at just 54. Pension obligations already account for 13 percent of GDP.
Without reform, that figure could balloon to 25 percent by mid-century as the population ages.
In addition, tariff barriers protecting inefficient local enterprises from foreign competition, labor laws, and burdensome
tax laws have long been seen as a drag on the Brazilian economy. A typical manufacturing firm spends 2,600 hours a
year complying with the country’s complex tax code; the Latin American average is 356 hours. Labor laws make it
expensive to fire even incompetent workers. And protection from international competition has resulted in
manufacturing productivity that is low by international standards. To compound matters, the country has been beset by
a massive corruption scandal that has reached into the highest levels of government. This resulted in the impeachment
of Rousseff in 2016 and further damaged confidence in the economy (see the Country Focus “Corruption in Brazil” in
Chapter 2).
In 2016, Michel Temer replaced Rousseff as President. He made a promising start to reforming the economy. He froze
public spending in real terms for the next 20 years. He also overhauled the country’s labor laws, making it much easier
to fire unproductive workers. Inflation moderated significantly, and a rise in commodity prices helped increase exports.
This allowed the central bank to reduce interest rates to 6.75 percent (they were as high as 12 percent), further boosting
economic growth. There was also a rash of privatizations—including that of the leading electric utility, Eletrobras—as
the government sought to raise capital by selling state assets and tried to increase the efficiency of the economy. What
remains is to fix the country’s pension problems. This would require raising the retirement age significantly. Temer ran
up against strong resistance. His initial proposals failed to garner enough votes in the Brazilian congress to change the
law on pensions.
In October 2018, Brazil held elections. Temer’s left wing Worker’s Party lost the election. The victor, Jair Bolsonaro of
the right-wing Social Liberal Party, ran on a law-and-order ticket, promising to fix Brazil’s high crime rate. He also stated
he would make necessary reforms to the country’s pension system.
Case Discussion QuestionsA. Brazil was seen as one of the world’s fastest-growing developing economies in the 2000–2010 period. What
were the foundations of this success?
B. Why did Brazil’s economic growth falter after 2012? How much of the damage was self-inflicted, and how much
was due to factors outside of the country’s control?
C. What do you think of Temer’s economic reforms? Were they on the right track?
D. What policies do you think Brazil should adopt going forward to reignite economic growth? How easy would it
be to implement these policies in Brazil?
CLOSING CASE 10
The Fluctuating Value of the Yuan Gives Chinese Businesses a Lesson in Foreign Exchange Risk
Between 2015 and early 2018, the Chinese currency, the yuan, fluctuated significantly in value against the U.S. dollar,
giving Chinese businesses an object lesson in the importance of managing for foreign exchange risk.
From August 2015 through to December 2016, the value of the yuan in dollars depreciated by 12 percent from 6.2 to the
dollar to 6.95 to the dollar. This depreciation was triggered by a slowdown in the Chinese economy, which led to an
outflow of capital from China. Even though the Chinese government spent heavily to try to prop up the value of the
yuan, using $1.5 trillion of dollar-denominated foreign exchange reserves to purchase yuan, they could not halt the
decline in its value against the dollar.
While the depreciation in the yuan boosted exports, it also resulted in an unanticipated increase in the yuan price of key
imports, which raised costs for a number of Chinese companies. About 980 listed Chinese companies reported combined
foreign-exchange losses of 48.7 billion yuan in 2015, almost 13 times higher than 2014, according to data compiled by
Bloomberg. Hardest hit were Chinese airlines, many of which imported aviation fuel that was paid for in dollars. As the
cost of fuel in terms of yuan went up, their profits slumped. In total, the Chinese airline sector registered foreign
exchange losses of 17.9 billion yuan for 2015, compared with 951.7 million a year earlier. The big three state-owned
airlines—China Southern Airlines Co, China Eastern Airlines Corp, and Air China Ltd—suffered 15.85 billion yuan in
foreign-exchange currency losses in 2015.
In 2017, conditions reversed. Between January 2017 and April 2018, the yuan appreciated in value by 10 percent against
the dollar, increasing from 6.95 to the dollar to 6.27 to the dollar. The appreciation was due to a number of factors,
including a return to stronger growth in China and the election of Donald Trump in the United States. The latter event
seems initially to have reduced the confidence that foreign investors had in the United States and resulted in an outflow
of capital as they sought to diversify their holdings of foreign assets and currency. The dollar also fell after members of
the Trump administration made statements suggesting that they were happy to see it decline, because they believed it
boosted U.S. exports
The appreciation in the value of the yuan against the dollar from January 2017 onward reduced the yuan costs for
Chinese companies that imported goods priced in dollars, such as aviation fuel. Thus, Air China noted in its 2017 annual
report that a 1 percent gain in the yuan against the greenback can boost its net profits by about 280 million yuan,
primarily due to reductions in the cost of aviation fuel.
On the other hand, the appreciation of the yuan raised the dollar price of Chinese exports. Many exporters saw their
profits squeezed as a result. In early February 2018, Guangdong Goworld, a supplier to Apple, said in a stock exchange
filing that it had suffered an estimated foreign exchange loss of 45 million yuan (US$7.2 million) in January 2018 owing
to a stronger yuan. The January figure alone was equal to 94 percent of its foreign exchange losses for the first three
quarters of 2017. It also translated into 34 percent of its net profits in the first nine months of 2017. The Shenzhen-listed
company manufactures and sells printed circuit boards, liquid crystal displays (LCDs), and ultrasonic electronic
measuring instruments to developed markets, including the U.S., Europe, Australia, and Japan.In another example, a spokesperson for Zhejiang NHU Co., a producer of vitamins, said that even as the vitamin export
market experienced a boom in 2017, the company suffered millions of yuan in foreign exchange losses. The basic
problem was that the company negotiated dollar prices for its vitamins in 2016, but by the end of 2017, each dollar of
sales was yielding less revenues when translated back into yuan (thanks to the appreciation of the yuan). To deal with
this problem, the company set up a team to discuss the issue and employed means such as hedging and forward
exchange transactions to try to minimize foreign exchange .
Case Discussion Questions
A. Why did the Chinese yuan depreciate against the dollar between August 2015 and December 2016? What were
the benefits of the depreciation for China? What were the costs?
B. Why do you think the Chinese government tried to limit the depreciation by using dollars to buy yuan? Why did
it not stop the fall in the yuan?
C. Why did conditions reverse in 2017, with the yuan appreciating against the dollar? What does this tell you about
how the foreign exchange market works?
D. What could importers such as the Chinese airlines have done to limit the negative impact of a depreciation in
the value of the yuan against the dollar in 2016? Should they have done this?
E. If you were a Chinese exporter, what might you have done if you had anticipated the appreciation in the value of
the yuan against the dollar that occurred in 2017?
CLOSING CASE 11
Can Dollarization Save Venezuela?
Venezuela is in deep trouble. Although the country boasts the largest oil reserves on the planet, a fact that should make
it rich, poor governance has created an economic crisis of historic proportions and turned the country into the poorest
in Latin America. The economy contracted by 16.5 percent in 2016, 12 percent in 2017, and another 18 percent in 2018,
while unemployment surged to over 34 percent. Due to food shortages, two-thirds of the population have reported
significant weight loss. Three million people (about 10 percent of the population) have fled the country. Over 85 percent
are now living below the poverty line. It is one of the biggest economic catastrophes in modern history.
The country’s economic decline dates back to the rule of Hugo Chavez, who took power in 1999. Chavez significantly
raised the royalty rate that foreign oil companies had to pay the government. Oil companies responded by not investing
in Venezuela and looking for oil elsewhere. Chavez then compounded the problem by pushing out the professional
management of the state-run oil company and replacing them with his own political appointees. The results included
underinvestment in exploration and extraction infrastructure, as well as a falling oil output. By 2017, oil output had
plunged by 50 percent from its peak in 1998, a major problem for a country where crude oil makes up about 95 percent
of exports.
Early in his rule, Chavez spent oil revenues liberally on social programs, including price controls and fuel subsidies. These
initially helped the poor and boosted his popularity. However, by 2012, significant strains were showing in the economy,
including declining oil production and exports, rising unemployment, high inflation, and ballooning government deficits.
In 2013, Chavez died and was succeeded by Nicolas Maduro. Maduro continued on the trajectory set by Chavez.
Unfortunately for him, oil prices and output both fell sharply, reducing government revenue. Rather than abandon social
programs and subsidies, Maduro simply expanded the government budget deficit, raising it to a staggering 38 percent of
GDP by 2017. He financed that deficit by printing money. Predictably, the result has been hyperinflation. The inflation
rate surged to 250 percent in 2016, and then to 2700 percent per year in 2017, and close to a million percent in 2018.
This made the country’s currency, the bolivar, worthless, stifling commerce, which depends upon a stable currency.
On the foreign exchange market, the value of the bolivar collapsed, falling from 64 per U.S. dollar in 2014 to 960 per
dollar by early 2016, and around 100,000 per USD by early 2018! It should be noted that this was the exchange rate on