Biz Inter Reporting

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Biz Inter Reporting

  1. 1. %Bizness Read on ................................... International Reporting The Dollar is therefore caught between rock and a hard place. It could well be that the currency and - Kensource the three key issues – interest rates, The End of the Road for the inflation and US-led global growth If the dollar keeps sliding, – are entering their final stages of Dollar? where would it stop without resolution. The implications will be causing a severe disruption? The All through 2004, the dollar was quite significant on emerging dollar did go down in the ‘80s and stable. However, it has suddenly markets. ’90s without causing much trouble. given way even as the US economy When the decline started in 1985 is preparing for a turnaround. The China .actor after the Plaza Accord, foreigners Does this presage something quite A bigger bubble or a bust? hardly held any dollar assets. This serious? Recently, the US Fed China and the US may find things time, they have $9 trillion, one- Chairman Alan Greenspan talked getting out of hand third of it held by central banks. If about the “increasingly less tenable China is the price setter in the the US can continue to crank out a U.S. current account deficit.” He commodity market. It is growing decent economic growth, the dollar has joined a band of bearish in double digits. China is causing will slide gently. But if inflation economists who have been arguing deflation. China is supplying the keeps inching up and the economy that foreign investors would US consumers with cheap gets worse (as may indeed happen) eventually reach a limit in their products. But will all this continue? with the waning of fiscal desire to finance the US deficit. That will depend on what China stimulation, holders of dollar They will move their money into does with its investment cycle and assets may get restless. other currencies or demand higher what the US does with its trade What would the Fed do? With U.S. interest rates. A few days later, deficit. The best outcome would be rising inflation and a weak the Fed hiked interest rate again by for China to let its currency currency, it would be hard to 25 basis points. Has the endgame appreciate and for the US to raise loosen the monetary policy again for the dollar begun? interest rates and taxes to bring to save the dollar. That will cause It is now official that the US will down its twin tower of deficits. runaway inflation. Indeed, make the dollar fall as a means to This will lead to a soft landing and liquidity may dry up as foreigners redressing the current account rebalancing. refuse to accept any more dollar deficit. Will it work? It will not, for However, China also has to do assets. Fed would not be able to the simple reason that an something about its property fight on two fronts and may settle overvalued dollar is not the main bubble. Construction has been for controlling the dollar slide reason for US trade deficit that is expanding furiously, causing a by raising interest rates. now 6% of GDP. US officials think huge demand for commodities, Unfortunately, that will cause an that the trade deficit is mainly the leading to massive property economic slowdown if not a result of a higher growth rate in the speculation. If the deficits and recession. On the other hand, a USA and poor domestic demand consumption are left alone in the steep fall in the currency may have in the Euro zone. But many US and property speculation is left a different kind of effect – a deep growing economies have a trade alone in China, there would be a psychological effect on global surplus too, —as China now has or hard landing and a serious bust in markets about the vulnerability of Japan had in the ‘80s. The reason commodity prices. After all, China the world’s mightiest currency. US has a trade deficit is because it accounts for at least a third of the has poor savings and high increase in global oil demand. consumption. A fall in dollar will So far, the US and China have make things somewhat expensive mutually sustained each other. The for the US consumer but will not US kept interest rates low and cut down trade deficit in any major China kept its currency pegged way.
  2. 2. %Bizness Read on ................................... and raised GDP press which could print as much have to rise to prevent money growth through dollars as possible to prevent going out of the US alarmingly. continuous deflation. Now he calls for the Fed And we have not even talked of investments. But to be vigilant against inflation. selling gripping the holders of US there could be a Core Consumer Price Index has treasuries. On the other side, the decoupling of interests as US and accelerated from 1.1% to 2.1%. Chinese economy may feel stalled China find overriding domestic Chicago Purchasing Managers as supply of property overwhelms compulsions hard to ignore. Index prices-paid is now at a 24- demand. After all, the value of For instance, interest rates have year high. Is a steady pick-up in property under construction may a way of getting out of hand. Just inflation on the cards? The Fed is be as high as 30% of GDP! Will 2005 about a year ago, Fed governor Ben steadily raising interest rates. be the year when US and China go Bernanke threatened to break the Expect more of the same as US their respective ways? If it does, we chain of deflation by reminding consumers are forced to save more, could see something entirely new everybody that the government the dollar weakens (despite short- and not altogether pleasant. has something called a printing term bounce) and interest rates Indian B-Schools Going Global 1 programme, students attend one Boconi, Italy, Esade, Barcelona, term of three-and-a-half months at Spain, Rotterdam School of ndian B-Schools are fanning out universities abroad. Management and Nijenrode to different parts of the world to IIM-Bangalore is also finalising University of Netherlands, equip students with skills plans to set up an offshore campus University Blefield, Germany, necessary to compete in a global in Singapore or one of the Southeast Katholieke University, Belgium, environment. In the current Asian countries. But unlike IIM-A, among others. scenario of liberalisation, MBAs IIM-B is not keen on tie-ups. It is ICFAI B-School has tied up with are expected to have functional, looking at the possibility of having Chartered Institute of Marketing, management and cross-cultural a full-fledged campus. UK, for MBA students pursuing skills and concepts in global IIM-Calcutta has started Student marketing specialisation. It is also business contexts. Exchange Programme (STEP) with a member of International Council IIM-Ahmedabad is looking at B-Schools around the world. The for Open and Distance Education possible tie-ups with leading North affiliate institutes for STEP include (ICDE), Norway . ICFAI represents American universities including Leipzig Graduate School of India in the Asian Securities Wharton, Columbia, Stern and Business, European Business Analysts Federation (ASAF), Stanford for its new one-year post- School and Otto Beisheim Graduate Australia. graduate programme in School of Management, Germany; K J Somaiya Institute has an management for executives (PGPX) Bordeaux Business School, France; alliance with Hunter Centre for scheduled to commence from April Institute de Empresa, Spain; IAG, Entrepreneurship, U.K. A full- 2006. In Europe, it could tie-up with The Louvain School of fledged course in Entrepreneurship the London School of Economics, Management, Solvay Business Management, Family-managed Leeds University and the School, Belgium; Copenhagen Businesses and Management of University of British Columbia. Business School, Denmark; Small and Medium Enterprises is in IIM-A would devise a one-month Jonkoping International Business the offing. The institute has signed global immersion module in School, Sweden; University of a MOU with the Johnson School of collaboration with these B-schools Technology, Australia, among Management, Cornell University, comprising four weeks abroad others. USA. EMPI has faculty drawn from focusing largely on industry visits The Faculty of Management institutions like Wharton with an element of foreign school Studies (FMS) of Delhi University Fordham USA, ESC France, SAA, exposure as well. IIM-A currently has collaborative and exchange Turin, Italy, HSEBA, Finland and has MOUs with 29 foreign programs with various institutions AMIC, Singapore. FORE School of universities in Europe, Southeast abroad including University of Management has a collaboration Asia, Australia and New Zealand California, USA, INSEAD and with NBS, which is ranked 10th under its international student Fontainebleau of France, S.D.A. among 250 B-schools in U.K. exchange programme. Under this

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