Net External Wealth and Real Exchange Rate Essay

Net External Wealth and Real Exchange Rate - Essay Example If the value of currency of a nation appreciates, then the value of its indebtedness in terms of foreign assets falls. This helps to improve the nations NFA situations and vice versa (Williamson, 2008). The nominal exchange rate (e) explains the amount of home currency (units) that can be purchased with a given unit of a foreign currency. Thus a rise in e refers to the depreciation or devaluation of the currency of a nation. On the other hand, the fall in e refers to the appreciation or evaluation of the currency of a nation. Real exchange rate is defined as the simple ratio of the price level (Pd) of the domestic currency and the price value of the foreign currency (Pf ). The real exchange rate of a nation (Q) = Pd/e*Pf , It refers to the amount of goods and services of a domestic country that can be purchased by a unit of money of a foreign nation (CNB, 2013). When analysts assess the changes in the exchange rates in the international trade, they rely more on the real exchange rate than nominal exchange rate. A real appreciation refers to a rise in the real exchange rate while a nominal appreciation refers to a decrease in the nominal exchange rate (Feenstra and Taylor, 2008). Relationship between Net Foreign Asset and Real Exchange Rate The relationship existing between the net foreign assets of a country and the real exchange rate has been a debatable issue of concern since 1920. If a steady state open economy model is considered, then the following relations can be established: tb = -r*b (1) (States that a steady trade deficit can exist in a nation = net investment income on net foreign asset position). rer = -Otb + ?X (2) (States that if the other factors in the economy (X) are... This paper stresses that the net external wealth of a nation relates to the balance of payment conditions of the country. The net foreign asset of a nation is the difference of the value of the asset owned by the nation from the rest of the world and the value of the asset of the country owned by the foreign countries in the world. The changes in the exchange rates of a nation largely influence the values of its foreign assets and liabilities. If the value of currency of a nation appreciates, then the value of its indebtedness in terms of foreign assets falls. This helps to improve the nations NFA situations and vice versa. When analysts assess the changes in the exchange rates in the international trade, they rely more on the real exchange rate than nominal exchange rate. A real appreciation refers to a rise in the real exchange rate while a nominal appreciation refers to a decrease in the nominal exchange rate. This report makes a conclusion that the traditional belief that the real exchange rate and NFA is inversely related is no longer feasible in the modern era, after the occurrence of globalization. A country in its economy can now always afford to encourage foreign direct investment and augment the level of its NFA. This is due to the fact that though the extent real exchange rate or currency value of the country would fall in the short run, the positive returns from the investments in the long run would substantially help the nation improve its real exchange rate. Therefore post-globalization, real exchange rate is assumed to have a positive relationship with NFA

Value Innovation at Johnson and Johnson Case Study

Value Innovation at Johnson and Johnson - Case Study Example For a large international corporation this would include the ability to manage across multiple dimensions of the business and having open communication throughout the organization. Without strong communication and the ability of skills and creation to move through the organization the value innovation would fail in Tidd, Bessant, and Pavitt's explanation of value innovation. Davilla, Epstein and Shelton (2006 p 15) examine that value innovation is technological: "research and development (R&D), or new product development" and strategic: "defining the business model." The Davilla, Epstein and Shelton (2006) definition offers a linear explanation, where there are two roads to value innovation. However, unlike Tidd, Bessant, and Pavitt (2005), Davilla, Epstein and Shelton (2006) do not examine the need to mobilize across multiple dimensions. They treat value innovation as a bilateral necessity, where one sector of management would focus on innovation of research and development while another management team focuses on strategic value. As with Tidd, Bessant, and Pavitt (2005), communication between the two divergent management sectors would be vastly important to creating and implementing any value innovation. Without it, technology may take a separate road than strategy. This would create confusion for the organization and for the consumer in deciding whic h ideals are concrete and which are fluid throughout the company. In contrast, O'Brien compares business strategies and defines a value innovation strategy as "Finding new ways of doing business" (O'Brien 2004 p 43). According to O'Brien, value innovation includes "the development of unique products and services, or entry into unique markets or market niches [and] making radical changes to the business processes for producing or distributing products and services that are so different from the way a business has been conducted that they alter the fundamental structure of an industry" (O'Brien 2006 p 42). O'Brien's definition is yet again different, where the focus is on the business as a whole and not as a segmentation of skill sets, technology resources, or strategy. Synthesis and Evaluation Is the assumption that value innovation must rely on technology and strategy to maintain a competitive business presence correct Authors Kim and Mauborgne (1999 p 58) do not believe that value innovation should rely on technology and strategy innovation. In fact, they treat value innovation as a separate concept. Kim and Mauborgne (1999 p 58) focus on the need of consumer value, where the "Value innovation links innovation to what the mass of buyers value." Kim and Mauborgne offer a more encompassing definition of value innovation, stating: "Value innovation also differs from technology innovation [] technology innovation is not a requisite for value innovation; value innovation can occur with or without new technology" (Kim and Mauborgne 1999 p 57). This is further supported by Holme, Mangusson and McKelvey (2007 p 32) who state that "One shortcoming is the narrow focus on