Task 1: Regional Economic Integration

What effect is the creation of a single market and a single currency within the EU likely to have on the competition within the EU? Why?

Task 2: NAFTA, USMCA and the U.S. Textile Industry

Prior to the signing of the NAFTA agreement, many concerns were raised regarding the potential for a significant loss of jobs in the American textile industry. Indeed, between 1994 and 2004, employment in the U.S. textile industry fell from about 858,000 to 296,000. However, at the same time, U.S. consumers have enjoyed lower clothing prices and U.S. fabric and yarn makers have seen a boost in their exports to Mexico.

QUESTION 1: Who gained from the process of readjustment in the textile industry after NAFTA? Who lost?

QUESTION 2: With hindsight, do you think it is better to protect vulnerable industries such as textiles, or let them adjust to the painful winds of change that follow entering into free trade agreements? What would the benefits of protection be? What would the costs be?

QUESTION 3: On 1/16/2020, Senate passed USMCA, a revamped trade deal with Mexico and Canada to replace NAFTA. Who would be the winners and losers of USMCA?

Task 3: CLOSING CASE (Chapter 10): Apple's Earnings Hit by Strong Dollar

Summary

The closing case explores the implications of changing currency values on the profits of computer giant, Apple. Apple reported a 2016 fourth quarter loss of $5 billion in revenue due to exchange rate changes. The impact on the company was significant, bringing its revenues from an 8 percent increase to just 2 percent. Apple engages in hedging to protect itself from foreign exchange fluctuations, but noted that the rise of the dollar came more quickly than had been forecasted leaving the company exposed.

QUESTION 1: Why did the strong U.S. dollar during 2015 have a negative impact on Apple's earnings?

QUESTION 2: Why did Apple not fully hedge its foreign exchange exposure to avoid a hit on earnings?

QUESTION 3: Why was the US dollar so strong during the 20142016 period? Was the strength in the dollar a rational response to economic fundamentals?

QUESTION 4: Under what conditions do you think the U.S. dollar might weaken against other major currencies (e.g. the euro, yen and yuan)?

QUESTION 5: How would a fall in the value of the US dollar against other major currencies impact Apple?

QUESTION 6: Some companies do not hedge their foreign exchange exposure. Do you think Apple is correct to hedge? Why?