Economics

Economics

category: Economics

Over the past decade, many media articles have discussed the topics of “outsourcing” and “emerging markets,” voicing concerns about U.S. deficits and debt and the impact on the U.S. dollar. Gold prices have increased, commodity prices have soared, and there has been an explosion of exchange traded funds (ETFs), many that allow individual investors to “invest” in foreign currencies. As recently as mid-September 2010, the Japanese yen, for example, reached a 15-year high in value against the U.S. dollar.

 

Emerging Markets

Emerging markets (EMs) are countries where the cost of labor (both direct and indirect) is very low compared to those costs in other countries. Companies in wealthier nations have therefore identified opportunities to reduce their costs by outsourcing (transferring) many lower-skilled production activities to these emerging markets. A list of EMs as compiled by The Economist magazine is provided below:

 

 

1 Argentina 10 Indonesia 19 Poland

2 Brazil 11 Israel 20 Russia

3 Chile 12 Mallaysia 21 South Africa

4 China 13 Mexico 22 South Korea

5 Columbia 14 Moracco 12 Taiwan

6 Czech Republic 15 Pakistan 24 Thailand

7 Egypt 16 Peru 25 Turkey

8 Hungary 17 Philippines 26 Tunisia

9 India 18 Russia 27 Vietnam

 

 

One component of outsourcing is known as business process outsourcing, or BPO. This type of outsourcing to emerging markets was a prominent issue during the 2008 U.S. presidential campaign. During this period, the United States and other world economies (including emerging market economies) appeared to be entering a contraction period.

Outsourcing isn’t a new idea, but the 1990s and early 2000s saw dramatic increases in the outsourcing of manufacturing jobs to emerging markets, particularly India, China, and Mexico. During this period, big emerging markets (BEMs) and economies were defined as Brazil, China, Egypt, India, Mexico, Poland, Russia, South Africa, South Korea, and Turkey.

 

Exchange-Traded Funds (ETFs)

 

An exchange-traded fund (ETF) is an investment fund that holds assets such as stocks, commodities, or bonds, and is traded on stock exchanges. ETFs can be attractive investments because of their low costs and tax efficiency, and are a very popular type of exchange-traded product. ETFs have grown in recent years. Some examples of ETFs include EWZ for Brazil, ECH for Chile, EPI for India, EWM for Malaysia, EWW for Mexico, RSX for Russia, EWS and SGT for Singapore, EZA and SZR for South Africa, EWY for South Korea, EWT for Taiwan, THD for Thailand, and TUR for Turkey.

Examine any foreign currency of your choice (preferably one from an emerging market), and provide an analysis of that currency against the U.S. dollar over the 5-year period ending with 2010. To complete this assignment, examine an exchange-traded fund (ETF) for that currency, perform any additional research you need to do in order to understand the topic, and then summarize the results of your macroeconomic analysis.

To find an ETF fund for a country that you’re interested in, go to an Internet search engine such as Google, and enter the keywords “exchange-traded fund for X,” and replace the “X” with the name of the country of your choice. You can see the history of your chosen ETF, in terms of U.S. dollars, by

 

 

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