Operation Management Summary of article

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       10.1  Alternative  Measures  of  Foreign  Exchange  Exposure  (337)   Chapter  10  focuses  on  the  management  of  exposure  to  foreign  currency  fluctuations   (from  an  accountant’s  point  of  view).  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.       11.1  Foreign  Exchange  Risk  and  Economic  Exposure  (379)   11.2  The  Economic  Consequences  of  Exchange  Rate  Changes  (387)   11.3  Identifying  Economic  Exposure  (391)   This  chapter  focuses  on  the  “real”  effects  that  companies  dealing  with  foreign   currencies  can  experience  with  their  global  business  transactions.    

    Concepts     Translation  exposure  –  arises  from  the  need,  for  purposes  of  reporting  and   consolidation,  to  convert  financial  statements  of  foreign  operations  from  the  local   currencies  involved  to  the  home  country.       Economic  exposure  –  the  extent  to  which  the  value  of  the  firm  will  change  due  to   an  exchange  rate  change.     Exchange  risk  –  the  variability  of  a  firm’s  (or  asset’s)  value  that  is  due  to  uncertain   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-­‐20  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.