For instance, Kirchner’s Government plan to solve the problem of the property market which has long suffered under the Argentine Peso’s instability, so government want to improve the Central Bank’s foreign reserves, but it might hurt private investor in the market (Fausto, 2010).On the other hand, Kirchner’s Government plans to expand of import controls (Fausto, 2010), so the Kirchner government is likely continuing its policy to substitute imports for improving domestic economy. This may indirectly affect foreign import activity and international investment in Argentina.
Besides, government’s unfulfilled promise and confiscation action are emerging issues. Although President Kirchner ...view middle of the document...
Moreover, the strategy regarding exchange rates for the feasibility project will be calculated with real currency forward contracts in order to eliminate or decrease the exchange rate risk. Therefore, since the project is expected to generate positive free cash flow one year from now and quarterly after one year, the strategy will be buying call USD/ARS forwards which will allow the company to exchange Argentina pesos to US dollars in a year and a then on a quarterly basis. Since the probability that the Argentina peso will increase in the future, these currency call forwards options will have a high premium, however, the project will incur in this expense to decrease uncertainty and protect the return on investment.
Argentina’s political system is similar to USA, so SMNC could feel more confidence understanding the regulations on imports and negotiating with the proper department. According to the current government import restriction policy, it is not a proper time to export product to Argentina; recently, Argentina banned smartphone sales of the major global smartphone manufacturers because they did not have plant facilities within Argentina (Alan, 2011). To reduce the foreseeable risk of import restriction, SMNC might need to consider building an assemble factory in Argentina; meanwhile, cost of transportation and operation needs to be reevaluated. In the short-term, the profit margin might drop due to the import restriction, but SMNC’s long-term value may increase by developing the branding effect in Latin America. Argentina’s political risk might decrease the SMNC’s profit margin in the short-term, but selling products in Argentina should be a reasonable decision to achieve long-term benefits.
Alan, F. (2011). Argentina bans the sale of the Apple iphone and BlackBerry models temporarily. Phone Arena. Retrieved from:http://www.phonearena.com/news/Argentina-bans-the-sale-of-the-Apple-iPhone-and-BlackBerry-models-temporarily_id25139
Argentina Overview. The World Bank. Retrieved from:
Bergen, J (2010). 6 factors that influence exchange rates. Investopedia.com. Retrieved from:
Bloomberg & Reuters (2014). Argentina interest rate. Retrieved from:
Bureau of Labor Statistics U.S. Department of Labor (2014). U.S. inflation. Retrieved from: http://www.bls.gov/cpi/
Central Bank of Argentina (2014). Argentina exchange rates. Retrieved from: http://www.bcra.gov.ar/index.asp
CIA World Factbook (2014). Argentina. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html
Consumer Electronics report (2014). Argentina...