Operations Management

 

1. Dollar index is used in measuring U.S dollar and comparing it with other currencies from trading partners. In this case, General Electric should use dollar index in measuring its operations. It is important to focus on exchange rate indexes in order to understand the dollar appreciation and depreciation (Jabara, 1). The dollar index will help to track how the dollar moves in foreign currencies and estimate the level of financial markets. Thus, it is important to note that this is the only way of understanding the Europe as the trading partner and implement the necessary changes on exchange rates. GE should calculate the dollar index on annual trade data in order to determine whether the indexes will bring developments in international market.  It is also advisable that the GE should use geometrical indexes relative to bilateral exchange rates (Jabara, 3).  Geometric index are important in that the company will analyze the level in which the index will be affected by appreciation and depreciation. For example, a high inflation domestically may result to an index which will increase the currency. In addition, where there is a difference between foreign and domestic inflation, GE may use nominal exchange rate to evaluate the real index of exchange rates. Other important point is that using dollar index in measuring operations; GE should use various methods which will help in measuring the currency and selecting other currencies which will be used in the index (Jabara, 3). Note that the main reason of measuring the dollar index is to view the level of competitiveness in international trade, and so   the indexes of exchange rates measured should relate with international trade economies.  In this case, it is important to use dollar index given that GE want to trade internationally with Europe and in this case, GE will compete with Europe business with import and export goods (Jabara, 8).  Note that the importance of using dollar index is that the exchange rate will have an impact on foreign goods and the weight of domestic and foreign currency will play a significant role in trade competition.

 

DXY relate to the Euro in that it has marked a higher economic growth in U.S. Since the creation of monetary affairs, dollar and euro have competed for a long time  and the important thing to note in exchange rates is that  there are possible changes with the both currencies given that euro  has failed in economic areas (Balk, 18). Other relation is that Euro and dollar creates the currency market   and both supports each other in gaining geopolitical power. The currency in domestic and foreign markets contributes to comparative advantage such as reducing exchange rate uncertainty   and using international monetary in creating payment deficits. Europe monetary union play a significant role in international finance and it circulates in the international markets to gain monetary convergence (Balk, 28). Euro and dollar works in international markets and Europe concentrates much on understanding how U.S dollar will affect Euro in international portfolio. In undersigning the reason as to why GE should use dollar index in measuring its operations, it is important to note that dollar is strong and it creates paths for Euro (Balk, 32). There is unstable dollar exchange rate which it is predicted that it will result in interest-rate differentials in Europe. In order to clearly solve the GE case, it is important to understand that dollar is related with euro in that dollar is a currency which is used in international transaction. It also has a higher share in both local and world trade than other currencies in the world (Balk, 48). In international exchange, Europe uses U.S dollar in exporting its goods and it fixing its prices. Thus, the important point in using dollar index is to assess the transaction cost and adequacy. This is because, if the currency is bought and sold in a lower price, and if it is accepted, then it means that the currency will meet its convertibility and stability (Balk, 48).  

Genc & Artar (1) asserts that despite the fact the euro and dollar are involved in international trade, there is a puzzling relationship between the two countries.  Note that euro was introduced with strong hopes one of them was the aim of gaining a higher competition with U.S dollar and take the monetary functions in the world (Genc & Artar, 29).  In GE’s case, it is important to note that euro has a high exchange rate and it destabilizes the competitiveness of the price.  GE should note that if there is a weak value with the euro, the operating cost in U.S firm will decrease the dollar revenue and both exporters and importers will be negatively affected by the transaction risk (Genc & Artar, 32). Other important point is that in measuring operations in international trade, GE may focus on long terms or short term financing as a strategic way of creating an international bond. In exchange rate, a company may also consider the government financing   so that it can be in a position to comply with international policies in the foreign country.  Note that the European market was initially created by Eurodollar and this indicates that U.S dollar can have a higher earning and increase the bond market (Genc & Artar, 37).

 

In assessing international market, GE should also use the trade statistics tool in order to understand the European markets and be in a position to implement development strategies.  In order to use the available resources in international market, it is advisable that GE should look for statistical information (Apte, 102). When using this tool, trade map will help to access the market information and the important factors required in developing and sustaining export trade.  Through trade map, GE will access information based on export performance, level of competition as well as the international demand.  In foreign market, the important thing to consider is the international demand for foreign currency exchange. In this case, GE should use trade statistics to assess the exchange rate as well as currency and demand (Apte, 108).  In international market, it is important to understand the factors which affects supply and demand and then causes for currency change.  For GE to create a currency value in Europe, it should consider the free markets and understand that the demand for currency in that particular market will be determined by the level of export. Other point is that the exchange rate occurs when   there is a difference between demand and supply of currency in two different markets (Apte, 105). For GE to understand how all these cases will occur, trade statistics and with the help of trade maps will assess the market in term of foreign demand as well as the alternative markets.

 

1. 1.Since the Euro is weak, it means that European market will be able to import products but it will not export products-which mean that European market will get an opportunity to get raw materials. It is important to understand that in international macroeconomics, higher exchange rates cause’s higher imports to get lower exports in turn and both export and import affects their marginal costs (Jabara, 13). What happens is that with the depreciation of euro, the export will increase and the import will decrease. Depreciation will increase the euro cost in export volume and decrease the import costs of goods and services as a result of cost of purchase in foreign country.  Or else, one can understand the effect of euro depreciation by viewing that when a country is having a higher demand of goods from foreign country, supply and demand will change with the change of prices of the product (Jabara, 13). The change will cause a change in foreign currency and this may affect the value of currency. Thus, the depreciation of euro means that Europe market will export more products and get less import (Jabara, 24).

 

2. In euro currency, GE‘s sales will be fewer following the fall in euro. This is because; the low currency has a lower growth which will have a long term effect on the GE growth. The weak demand of goods and services will affect its productivity as a result of weak nature of monetary fund. GE should understand that weak euro will not affect export but it wills also increase the cost of U.S products (Genc & Artar, 52). In other words, it means that the currency fluctuation will have a negative effect on GE real exchange rates and more important, it will affect the net exports through switching the foreign and domestic products. In addition, GE will decrease its export to Europe given that it will be more expensive to export products. This clearly shows that GE will have less revenue and will suffer from low profitability. However, this issue can be solved by adding value to the euro currency. Value will eliminate the adverse effect on GE sales and create a balance between exports and imports (Genc & Artar, 55). First, value can be added through reducing inflation. Low inflation will results in high demand and high currency value.  In other words, low inflation will increase the purchasing power and   interest rates.  Second, the solution to the problem is that since GE has a higher currency, it should increase the interest rates so that it can have a higher foreign capital and increase the exchange rate. Third, there should be terms of trade between GE and Europe. This means that there should be balance of payment between exports and imports and this will increase the GE revenue as a result of higher exports (Genc & Artar, 81).

 

3. GE should issue euro denominated bonds so that it can reduce the risks of exchange rate and enjoy low rates of interests on Eurobonds (Geis, Mehl & Wredenborg, 1). The latter will allow GE to improve the investor base through providing liquidity to the European market. Euro denominated bond will impact the cost of interest rate and in this case, GE will get a low interest rates as a result of portfolio diversity. Other point is that euro bonds will impact supply and demand in that potential investors will be interesting in borrowing the currency thereby creating visibility and strategic incentive. On supply chain, GE will meet the financial needs in both local and foreign markets and this will create a big investor base (Geis, Mehl & Wredenborg, 6). Generally, Eurobond will play a great role in GE business operations and particularly in securing debt. This is best strategy in that Eurobond is a marketable currency and the GE will not fear the devaluation of its currency or inflation.  I believe that in this case, there is no other better currency than Eurobond in issuing debt (Geis, Mehl & Wredenborg, 8). This is because, the currency plays an international role in the global markets and it has debt securities in international arena.  GE will also gain advantage in financial market and help it to stay competitive in the international market.
4. Given that the price of oil had declined precipitously, GE should not develop other oil equipment and services since this is not a good business strategy. This is because, the cheap oil prices is reducing the price index which then leads to deflation. Spending and investment are also affected particularly to customers with higher income (Husain, 8). In Euro zone markets; there will be a higher level of debt since the markets will be unable to eliminate GDP debt ratios. Therefore, I recommend that rather than expanding oil fields, GE should develop energy business internationally as it has already decided in order to increase productivity, profit and maintain its competitive edge in the global market (Husain, 9)

GE purchased Alstom’s energy businesses for various reasons. First, the purpose was to expand power generators and increase the company’s stock (Passeri, 1). It also wanted to develop industrial segments which would increase the total revenue. The energy grid businesses were developed and the CEO predicted that they would raise $6 billion revenue in annual basis. The main objective was to increase the competitive edge and become the leading provider of infrastructure products in the globe. For future growth, GE should expand on strategic business which means that it should focus on long term growth, create additional growth and reach the untapped market (Passeri, 1).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Work cited

 

Jabara L. Cathy. HOW DO EXCHANGE RATES AFFECT IMPORT PRICES? RECENT ECONOMIC

LITERATURE AND DATA ANALYSIS. May 2009.Office of Industries U.S International Trade

Commission 500 E Street SW Washngton, DC 20436

 

Apte, D P. Statistical Tools for Managers: Using Ms Excel. New Delhi, India: Excel Books, 2009. Print.

 

 

 Husain M.,Arezki R,.Breuer P,.Haksar V,. Helbling T,. Medas M S., & an IMF Staff Team.

Global Implications of Lower Oil Prices. 2005

 

 

Genc Guneren Elif & Artar Kibritci Oksan. THE EFFECT OF EXCHANGE RATES ON

EXPORTS AND IMPPORTS OF EMERGING COUNTRIES. European Scientfic Journal

May 2014 edition vol.10, No.13 ISSN:1857-7881 (print) ISSN 1857-7431

 

 

 Passeri James. Why GE's $10 Billion Alstom Purchase Is its Best Deal in a Century. The  Street

2015.

 

 Geis  Andre, Mehl Arnaud & Wredenborg Stefan. THE INTERNATIONAL ROLE OF THE EURO

EVIDENCE FROM BONDS ISSUED BY NON-EURO AREA RESIDENTS. © European Central

Bank,  2004

 

 

Balk, B M. Price and Quantity Index Numbers: Models for Measuring Aggregate Change and

Difference. Cambridge: Cambridge University Press, 2012. Print.