Business English
Done by: David Cardeñosa
TASK 1: Exchange rates How Exchange rates affect our economy? The exchange rate shows the relationship between two currencies. For Colombia, the exchange rate expresses how many pesos have to be paid for a unit of another currency. The most used currency for foreign transactions in Colombia is the US dollar. The exchange rate rises or falls according to the offer and demand of the currency. Therefore, as more dollars can be found the exchange rate falls. On the other hand, when few dollars are found the exchange rate rises.
Exchange rates fluctuations are due to different shocks. These shocks may either have a persistent effect on the rate, or a one-time effect that can’t be predicted. In order to understand how exchange rates affect the economy, it is necessary to identify the type of shocks that are relevant in this exercise. Exchange rates have different impacts on the economy of a country. On one hand increases in world export prices can be seen, which adjusts the transfer of resources between the trade sectors. Also the trade flows and economic welfare are affected by the exchange rate. Finally, the exchange rates have different effects according to the economic sector being studied. For instance, the agricultural sector seems insensitive, while the manufacturing and service sector are more vulnerable.
How good was gold convertibility? Was this system fair enough with all the countries? Gold convertibility was based on having a fixed price of per ounce of gold. The US government was committed to backing every dollar overseas with gold, by this time the US dollar was the only currency directly backed by gold. Other currencies were valued against the US dollar, and could be exchanged through the US government for a fixed amount of gold. Gold convertibility was good as long as the US had enough gold reserves to back up the domestic and international money supply. However, as this supply expanded and the US expenses rose, the US dollar got overvalued, and therefore devaluation of other currencies was necessary.
This is the reason why the system wasn’t fair with the countries holding US dollars. For instance, because Western Germany wasn’t willing to devaluate its currency in order to uphold the US dollar, it redeemed their US dollars for gold. This move was followed afterwards by other nations such as France and Switzerland.
If US Dollar increases, this affects or helps our economy? Explain why. If US Dollar increases we have to study 2 types of persons. On one hand, people who trade with foreign companies (exporters) will benefit from this increase. As they collect the same amount of dollars, as they exchange them at a “high” rate, they will have more pesos to spend. At the same time they will have the ability to be more competitive in the international market, and be able to lower their price in dollars. This will allow them to acquire new customers and afterward adjust the price and sell at higher prices. As a consequence, new exporters will appear. Industries will appear, and investments in assets and manpower will appear. However the other sectors will shrink, and their costs will be higher, therefore the demand of the product or service will fall. On the other hand, people that aren’t involved in international transactions are affected negatively. These people are having the same incomes, but a lower acquisitive power. Products being bought from the US will have and increase in their prices.
TASK 2: Financing international trade What is the role of exportations and importations in our economy?
Exports and imports are the forces of economic growth. Ports employ thousands of workers to load and unload cargo. At the same time, jobs for logistical professionals that transport the cargo are created. The products that Colombia exports are mainly natural resources and agrarian products. Those products are needed as inputs in other countries in order to develop manufactured goods. Exports allow to acquire foreign currencies, and also to achieve a balanced development. If exports grow, jobs to develop export products are created. Imports allow to acquire products that aren’t produced in the country, so they allow the access to products that otherwise wouldn’t be available. In some cases imports also allow the access to low-cost and high-quality products. In Colombia, technologies and equipment are imported, in order to develop processed products. Therefore, imports have helped to improve the competitiveness of our manufactured goods. Finally, imports have promoted foreign investment, which has contributed to the development of free zones and jobs in the region.
Are Free Trade Agreements affecting our economy? Give examples to explain this situation. Free trade agreements imply a bi-lateral commercial relationship between Colombia and other countries. Exporters have the opportunity to establish long term ventures that can develop jobs and increase incomes. FTA allows exporters to be in contact with potential customers. However, now they have to compete directly with more companies similar to them. Free trade agreements require investment and hard work in order to both countries to feel the benefits. If this is not done, a free trade agreement reproduces a model of raw materials export in which the only benefitted is the developed country. Transnational corporations are usually the ones that get the benefits, and the inclusive development is not achieved. For instance the agrarian sector, which is very vulnerable to FTA’s, has suffered a lot. The last weeks the agrarian strike was caused because of the poor performance of the sector. The local farmers, who felt the impacts caused by the disadvantage when competing against US companies (because of quality and government benefits that US farmers received) went on a strike to display their concerns. Local farmers, had been working harder, but still having fewer profits.
TASK 3: Business plans “El tapete” Soccer Club.
Indoor soccer fields are becoming very common in the landscape of Bogotá. However, most of the fields are located in commercial districts, far away from residential neighborhoods. The soccer facilities of “El tapete” will be located at a walking distance (approximately 10 minutes) from the neighborhood “Bella Suiza”, “Contador”, and “Belmira” (approximately 7000 habitants). The location of the fields is selected strategically. On one hand, the walking distance from the residential neighborhoods facilitates kids to walk to the soccer academy, in order to fill the schedule from 2 p.m. to 6 p.m. Also at a walking distance “El Bosque” university can be found, which has around 9,000 students, this market is going to be approached by special offers for them to fill the fields through de day.
According to the market study, the rush hours for the fields is between 6 p.m. and 10 p.m. In order to fill the other hours, the soccer academy (whose target market is kids that are 7 to 16 years old), is developed. The university students, receiving special offers, will use the fields through the morning until 6 p.m. For the weekend mornings, tournaments are going to be organized. And the purpose is to have memberships assigned to teams and players.
The built area required for the 5 fields (4 for fut-5, and 1 for fut-8) is of 5,700m2, plus the required facilities such as bathrooms, store, etc. of around 600m2. Finally, a parking lot will be constructed, with an area of 1,000m2.
The capital required for each field of soccer-5 is of 40,000USD, while of 50,000USD for the soccer-8. The other facilities require a capital of 40,000USD. So, for the start-up a net amount of 290,000USD is required. Incomes for the field’s rental are of 60USD in rush hours (4 daily hours estimated) and of 40USD in non-rush hours (1 daily hour estimated). Therefore the incomes projected for a month are show in the next table: Field # Day Month 1 USD 280,00 USD 5.600,00 2 USD 280,00 USD 5.600,00 3 USD 280,00 USD 5.600,00 4 USD 280,00 USD 5.600,00 5 USD 380,00 USD 7.600,00 Total
USD 30.000,00
On the other hand, the monthly expenses are estimated in 9,000 USD. Other incomes that are related to food and drink sales, as well as tournaments and the youth academy are estimated to be in 12,000 USD per month. Objectives Consolidate a youth soccer academy that involves 80 students and the most qualified instructors. Register 30 adult teams, and 20 youth teams by the end of the first year of operation. Develop a market that rents the fields for special events. Host 20 tournaments by the end of the first year of operation. Have an occupation of 90% during the rush hours. Mission The mission of “El tapete” soccer club is to provide Bogota’s residents with a soccer facility that will enable both youth and adults to enjoy the sport of soccer year round.
