Running head: GROUP TWO CASE STUDY TWO
Forecast demand for coffee for 1977 – 3rd Quarter:
BUSI 620-D06-LU0-Group Two Case Study Two
11/4/12
1
1.Chapter 6: problem 15*
* Please change the variable of per capita disposable personal income from It to Yt.
For the fourth quarter of 1977 forecast, D1t=D2t=D3t=0
Quarter
1977.3
1977.4
1978.1
1978.2
P
1.86
1.73
1.60
1.46
Ln P
.3063
.2849
.2635
.2405
Y
3.57
3.60
3.63
3.67
Ln Y
1.8261
1.8414
1.8567
1.8772
P'
1.10
1.08
1.07
1.05
Ln P’
.1631
.1602
.1587
.1557
T
59
60
61
62
D1t
0
0
1
0
D2t
0
0
0
1
D3t
1
0
0
0
GROUP TWO CASE STUDY ONE
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (59) – 0.0961(0)-0.1570(0)-0.0097(1)
Qt = 1.2789- 0.3063+1.8261+0.1631-0.5251-0.0097
Qt= 2.427
Forecast demand for coffee for 1977 – 4th Quarter:
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (60) – 0.0961(0)-0.1570(0)-0.0097(0)
Qt= 1.2789-0.2849+1.8414+0.1602-0.534
Qt= 2.4616
Forecast demand for coffee for 1978 – 1st Quarter:
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (61) – 0.0961(1)-0.1570(0)-0.0097(0)
Qt= 1.2789-0.2635+1.8567+0.1587-0.4468
Qt= 2.4273
Forecast demand for coffee for 1978 – 2nd Quarter:
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (62) – 0.0961(0)-0.1570(1)-0.0097(0)
Qt= 1.2789-.2405+1.8772+.1557-.3948
Qt= 2.6765
Equation: lnQ=1.2789- 0.1647lnP+0.5115lnI+0.1483lnP-0.0089T-0.0961D-0.1570D-
0.0097D Forecast demand for coffee for 1977 – 3 rd Quarter:
2
Quarter
1977.3
1977.4
1978.1
1978.2
Coef
1.2789
Coef Pt
-0.1647
Pt
1.86
1.73
1.6
1.46
Coef Yt
0.5115
Yt
3.57
3.6
3.63
3.67
Coef
P't
0.1483
P't
1.1
1.08
1.07
1.05
Coef T
-0.0089
T
59
60
61
62
Coef
D1t
-0.961
D1t
0
0
1
0
Coef
D2t
-0.157
D2t
0
0
0
1
Coef
D3t
-0.0097
D3t
1
0
0
0
Qt
Forecast
2.42694
3
2.46153
3
1.52690
6
2.36255
8
GROUP TWO CASE STUDY ONE
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (59) – 0.0961(0)-0.1570(0)-0.0097(1)
Qt = 1.2789- 0.3063+1.8261+0.1631-0.5251-0.0097
Qt= 2.4276943
Forecast demand for coffee for 1977 – 4th Quarter:
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (60) – 0.0961(0)-0.1570(0)-0.0097(0)
Qt= 1.2789-0.2849+1.8414+0.1602-0.534
Qt= 2.4611533
Forecast demand for coffee for 1978 – 1 s t Quarter:
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (61) – 0.0961(1)-0.1570(0)-0.0097(0)
Qt= 1.2789-0.2635+1.8567+0.1587-0.4468
Qt= 1.526906
Forecast demand for coffee for 1978 – 2 nd Quarter:
Qt= 1.2789- Ln P + Ln Y + Ln P’ – 0.0089 (62) – 0.0961(0)-0.1570(1)-0.0097(0)
Qt= 1.2789-.2405+1.8772+.1557-.3948
Qt= 2.362558
3
2.Read Case Study 9-4 “The Exchange Rate of the U.S. Dollar and the Profitability of
U.S. Firms” and write at least two pages essay on “The recent (past 12 months)
price change of the U.S. dollar in the foreign exchange market and its impact on
American companies.”
The exchange rate is simply the price of one country's currency expressed in another
country's currency. In other words, the rate at which one currency can be exchanged for another.
The exchange rate between the dollar and the euro is US$1 = 0.75 euro (for each dollar
GROUP TWO CASE STUDY ONE4
exchanged, 0.75 in euro is received). However, it is important to note the exchange rates change
on a daily basis (N.A., 2010).
The Foreign Exchange (FX) Market is a physical and virtual institutionalized structure
through which the currency of one country is exchanged for the currency of another country
(Satterlee, 2009). “The main principle of trading on FX Markets is to select a pair of currencies
and measure profit or loss by the fluctuation of one currency’s market activity compared to the
other” (Satterlee, 2009). The FX Market has gradually evolved into the largest, fastest, and most
flexible currency trading market in the world. The largest trading centers of the FX are located in
Tokyo, London, and New York (Satterlee, 2009). Actual currencies do not change hands on FX
Markets; rather all transactions are completed electronically and by the phone. In the United
States, the Federal Reserve Bank is responsible for regulating the growth of the economy, which
is accomplished by the increase or decrease of money supply (Satterlee, 2009).
These markets are located in the largest financial centers, such as New York, London,
Tokyo, and Frankfurt. It is at these locations where monetary exchange rates are set. The rate of
exchange between currencies is determined through the use of supply and demand curves. (Need
ref…Jefferies)
There are multiple participants who play a role in the foreign exchange market. This
inventory of participants include but not limited to, commercial banks, securities dealers,
commercial companies, central banks, hedge funds companies, investment management firms,
retail foreign exchange traders, non-bank foreign exchange companies and money
transfer/remittance companies. (Need ref….Harris)
The exchange rate of the U.S. Dollar directly affects companies throughout the U.S. by
either hurting or helping their respective bottom line; while some companies welcome a falling
GROUP TWO CASE STUDY ONE5
dollar others prefer it to rise. The deciding factor ultimately rides on whether the company is
importing or exporting, and whether there are a large amount of expenses that set off such
change or not (Salvatore, 2012). The current trend for the U.S. dollar has been one which has
gradually been ticking up in appreciation against other currencies (Pilzner, 2012); to be exact,
“Since June 2011, the U.S. dollar has been appreciating against other major currencies.
As a result of global economic uncertainty, investors seem to be flocking to the U.S.
dollar to hedge against risk in the markets. Over the past 12 months, the U.S. dollar has
appreciated about 12% against the euro, and is up about 10% as an index versus a basket
of other currencies” (Pilzner, 2012)
Exchange rates have negative and positive effects on global businesses. Many currencies
can easily be exchanged for other currencies, which are referred to as convertible currencies. If
currency is converted, regardless of the circumstance to another currency, this currency is
unrestricted (Satterlee, 2009). However, many nations restrict convertibility of their currencies
due to their national and international policies and interests.
The value of the US dollar has been declining over a long period of time. In 2002, a Euro
was worth $.87, which showed strength in the value of a dollar (Amadeo, 2012). The result of
this value was that it took fewer dollars to exchange into one Euro. Over the last ten years, this
value has been declining. By the fourth quarter of 2011, a Euro was worth $1.35. This shows that
the value of the US dollar has weakened, because now it takes more dollars to exchange into one
Euro.
The result for US companies during the depreciation of the dollar is increasing exports to
increase profits (Salvatore, 2007, p. 346). As the value of the dollar declines, foreign countries
find US goods and services cheaper, which allows American companies to sell more goods
abroad (Ceglowski, 2012). The balance of profits; however, is held with imported
goods. Although American companies may have the opportunity to export more, the costs
GROUP TWO CASE STUDY ONE6
associated with importing supplies and parts becomes more expensive. For the American
company, a decisive evaluation must be completed in order to understand the potential to
maximize profits.
“A depreciation of the dollar by making U.S. goods and services cheaper to foreigners in
terms of their currency, allows U.S. firms to sell more abroad without lowering the dollar price
of their products, and thus increases their profits and their share of foreign markets” (Salvatore,
2007, p. 388). In conclusion the result for US companies during the depreciation of the dollar is
increasing exports to increase profits (Salvatore, 2007).
References
Amadeo, K. (2012, January 10). About.com. Retrieved February 12, 2012, from US Economy:
http://www.useconomy.about.com
Ceglowski, J. (2012). Has global competition changed US export pricing? International Journal
of Finance & Economics , 17 (1), 1-13.
http://www.liberty.edu:2048/login?
url=http://onlinelibrary.wiley.com.ezproxy.liberty.edu:2048/doi/10.1002/ijfe.438/abstract
GROUP TWO CASE STUDY ONE7
N.A. (2010, March 01). A change in currency exchange rates may adversely affect our
profitability. Retrieved from
http://www.American_Capital_Strategies_(ACAS)/Change_Currency_Exchange_Rates_
Adversely_Affect_Profitability
Pilzner, B. (2012, June 22). Philip Morris faces currency headwinds. Retrieved from
http://money.msn.com/top-stocks/post.aspx?post=2f0d1817-29cb-4568-
b51a544bfe4bab7d
Salvatore, D. (2007). Managerial Economics in a Global Economy. New York, NY: Oxford
University Press.
Satterlee, B. (2009). Cross border commerce. Roanoke: VA. Synergistics.
