International Financial Management Assignment Example | Topics and Well Written Essays - 2500 words

International Financial Management - Assignment Example Pertaining to planned investments in South Africa by Neptune, this report outlines the possible threats of local firms’ resistance and how Neptune might respond to them. Finally, the report outlines the effects of currency variation of citing production abroad, if Neptune let sales in South Africa to be in Rand. Effects of the Possibility that the United States will take Action to reduce its Current Account Deficit on Neptune The current account deficit refers to a situation where the total imports into a country exceed the total exports (RupyaGyan, 2013). Reduction of the current account deficit means a reduction in the quantity and value of imports and an increase in the quantity and value of exports. The major aim of this move is to encourage and promote exports while protecting local firms of a country. However, it should be noted that a switch in expenditure from foreign to home goods reduces foreign income (Jones, 2003, p, 641). For instance, For instance, industrial cou ntries sought to reduce their current account deficits by reducing oil imports or increasing their exports to other countries. As exports increase, current account deficit reduces (Siddaiah, 2010, p, 71). The possibility that the United States will take action to reduce its current account deficit will pose various effects on Neptune Plc. ... Effects on Neptune Plc if it continues to Export Water Pumps to the United States If the United States’ government takes action to reduce its current account deficit, then the government’s main objective will be to reduce imports to its country and increase its exports. Most governments use the policy of reduction of the current account deficit to divert the expenditure of consumers away from imports and direct it towards home produced goods. Countries limit imports to reduce current account deficit (Neave, 2009, p, 301).This means that, as United States’ residents turn their attention to home produced water pumps, they will spend more in purchasing American manufactured water pumps and spends less in buying foreign manufactured water pumps that have been exported to the United States. Consequently, the demand for foreign manufactured water pumps, Neptune Plc’s water pumps being among the category is likely to reduce drastically. This is because Neptune Pl c manufactures water pumps in Europe and exports to the United States of America. Consequently, this will lead to a decrease in profits because sales shall have decreased because of that scenario. The possible ways that the United States’ Government can use to reduce the current account deficit include demand-switching policies, foreign goods demand reducing policies and supply side policies (Gillespie, 201, p, 493). The use of tariff levies means that the United States’ Government will impose tax on imports. Definitely, imports’ prices will go up. This is because foreign companies that export goods to the United States, Neptune Plc being one of them, will raise prices of their water pumps to maintain their profit levels. As the prices of