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Greece: On Considering the Possibility of Leaving the Euro and Reverting to the Drachma

A: Effect on the Balance of Payments

The impact of a possible exit, by Greece, from Euro to the Drachma will have a significant reflection on the balance of payments. Considering Greece as an ideally developed country, the value of the Drachma will be slightly higher than that of the Euro. In such a case, tagging its domestic productions on the value of the Drachma will imply that its receipts and payments will be enticing to the local population. However, the observation is only expected to last for a brief period of the cost of business is anticipated to hike. Greece will be deemed to be unfavourable destinations for investment by the multinational firms. On that note, attaining progressive receipts on their products may develop some critical upkeep challenges. External clients’ interests on the products sourced from the country will be unable to support their consumption interest due to the increased cost. It is further expected that the observation will have an impact on the balance of payments, leading to instability. An ideal deliberation on the effects associated with the adoption of the Drachma over the existing Euro needs remains best comprehended when perceived along the impression of deficits and surpluses. It is further obvious that an exceptional amount of currency is subjected to the transactions involving the delivery of goods and services. Therefore, it is essential to a substantial interest in the effects of the reverting efforts to be aligned on the input of trade in the development of the balance of payments.

A reflection on the fiscal period between the year 2009 and 2010 may offer some insight on the payments and receipts associated with the Greece economy. Critical to the comprehension of the receipts payment related to the Greece economy is the identification of its strategic business partners. Greece enjoys a vast export interests with Germany, Italy and the United Kingdom. Also, Bulgaria is also considered a prominent trade partner. Evaluating the net volumes exported to the respective countries within the last five years allows the development of insight on the performance of the Greece industries. Also, it allows a reflection on the ideal statues that are defining trading prospects of the nation. Greece has experienced a progressive growth in its exports to Germany while those of the Italy and Bulgaria have stabilized over the period of interest. However, exports to the United Kingdom have dwindled remarkably.

A similar observation may be made about the imports made by the nation. Greece has promoted a steady and progressive import culture with Germany and South Korea. However, it ability to promote higher imports with countries such as Italy, Russia has experienced routine declines. Arguably, the observation may be linked to the growth of the local industry or the installation of multinational investors in the state. An overview progress registered in the gross imports and exports allows an absolute decision on the current nature of the balance of payments shared by the nation. There exist higher exports in the last five years as compared to the imports, implying a surplus in the balance of payments.

A reversion into the Drachma will have an adverse effect to the surplus effect associated with the balance of payments for Greece. Arguably, the Drachma will be of a higher value as compared to the Euro due to the domestic standards of the Greece. Despite the input of elasticity, the measure will make the local goods seem expensive to the international consumers. Also, the ability for the local population to import will be considered to have improved due to the effects of a stronger currency. It is obvious the elastic scenario instigated by the development will have an input on the trade realities on the long term. A strengthened importing culture and a repelled international consumer will lead to deficits in the balance of payments. However, the observation will tend to occur periodically. The first phase will involve the address of the concern of surplus that will be balanced by the immediate rise in the import capacity of the Greeks. However, the status will be short lived since the desire to import will not be diminishing but experiencing improved increase over time.

The development of deficit effect on the economy of Greece will not be anchored solely on the concept of exports and imports. There exist numerous options that may tend to define the respective impression of the revert to the Drachma as compared to promoting the usage of the Euro. Among them include the input of tourism and secondary income. Apparently, the return into a stronger Drachma will imply a reduction in the tourism expenditure due to the increased associative expense. Also, the ability of the tourists to consider Greece as an ideal destination may experience direct effects. Tourism is regarded as a key element in the receipts associated with the economy of Greece. Therefore, affecting its ability to thrive as well as proceed contributing to the economy. Similar perception will be shared on the concept of second income. The registered number of secondary income or payment transfers has experienced a progressive reduction that has shifted to an increase in the last two years. On implication, Greece has been managing its inflow of product and services that are not parceled in a trade agreement.

The perception of secondary payments allows the reflection of the model of trade interactions shared by Greece and its implication to the gross income. An increase in secondary payments implies that the firm remains positioned to engage in marketing strategies that define the sole interests of the involved nations. On implication, the prospect of having the current surplus observation in the description of the balance of payments remains best explained. Reverting to the Drachma will imply that the ability of free entry of items outside the various trade agreements remains limited, thus reducing the input associated with the secondary income.

In conclusion, the reverting from the Euro to the Drachma will have a pronounced effect on the balance of payments associated with Greece. However, the effect will occur in different phases. There will be a brief moment of stability from the current surplus status. However, progressive trade interests along the authority of the stronger Drachma will discourage the flow of revenues from sectors such as tourism, exports and incoming items amounting to secondary income. In unison, the combination of the effects of such eventualities will lead to a deficit in the balance of payments.

B: Application of the Exchange Rate Models

The determination of the possible exchange rate models adopted by the drachma following its introduction is partially dependent on the several rules defining product retailing and the subsequent input of the purchasing power parity. Arguably, the purchasing power is anticipated always to remain stable or constant across the nations. However the input of concerns such as inflation needs to be factored, as well as the prospective performances of the benchmarking currencies. However, an input on the one price and arbitrage concept may disallow the ability to predict the exchange models expected to be adhered by the drachma.

There are numerous factors that assist in the shaping of the changes in the value of a currency. They include the effect of the international Fisher effect. It is naturally expected that the returns associated with the home investment pair with their foreign counterparts. However, the concept of investment is subjected to differing interests and revenue quotas. Different nations have different taxation initiatives. Also, different nations are anticipated to exercise various interests rates with relation to the ability of other players invest within their territories. Therefore, the attainment of equal foreign and domestic investment revenue remains farfetched.

The indication of the prospective inability to balance on the revenue generation potentials associated with the respective revenue earning routes calls for the adjustment of involved currency. It may be argued that the determination of the respective values to be shared by the involved currencies needs to be anchored on the strength of the shared trade items. Essentially, the primary interest behind the striking of a balance among the impression of the revenues associated with both the foreign and domestic investment may be suggested to have an orientation on price parity. However, such an assumption would not be perceived to being considerate for the additional inputs that define the concept of currency valuation. It is vital to involve all the factors that are to be considered in the projection of the value tendency associated with currency.

The valuation of the drachma needs to be anchored on the performance of the Greece economy and its impact to that of its trading partners. Greece being a perceived as a developed country points on a stringent ability to sustain its inflation rates at manageable levels. However, the perception increases its fiscal risks with relation to the nature of its investment. Essentially, developed nations are anticipated to exercise a sense of confidence in the abilities of the local industry, services and products. On that note, the process of determining the value of the drachma remains vested on the policies embraced by Greece.

The value of the Drachma will be affected by both the inflation and income differentials. Both of the suggested values will have a significant impact on the ability of the country in promoting active engagement of experts. Also, the pricing of its local goods will be equally affected. Restraining the capacity to make exports would imply that Greece remains unable to secure foreign goods. However, such an assumption may not be perceived to be critical for a developed nation due to the depth of its domestic technology. However, the inability of a firm in promoting trade with external partners due to non-restrictive observations may be perceived to be critical of the promotion of the international image associated with a nation. Arguably, such an image remains vital in the promotion of ideal trade agreements with the rest of the globe.

Pursuing extensive trade restrictions in the hope of supporting the interests of the local industries would imply Greece reduces the contribution of foreign exchange into its economy. The importance of foreign currency in the promotion of a sound balance of payments, as well as the determination of the exchange value, cannot be under exaggerated. Essentially the effect of the reduced supply of external currency may be perceived to have a correlation with the upshot of restrictions in the flow of capital. The inability of Greece to promote efficient flow of capital among the population will exert some considerable pressure on the demand for foreign currency.

In conclusion, the realization of a sense of inadequacy in the value of the local currency may be suggested in a desire to balance the interest shared domestically. Also, the input of the rest of the resounded factors towards the identification of the potential balance in the pricing parity remains perceived equally crucial. It is upon the evaluation of such facts that the prospect of making a prediction on the value of a currency over time remains exceedingly out of possibility. Besides, there exist, numerous models, upon which the desire to evaluate the value of a currency remains anticipated to adhere. However, a considerable of such measures are suggested to involve the internal policies associated with a nation. Therefore, the prediction of the prospective values of the drachma desires to be established along the impression of various concerns affecting a nation. Furthermore, it is eminent that the determination of the respective currency values is anticipated to capture meaningful but momentarily adjustments such as inflation. It is only upon making expectations relating to each of the suggested entities that a prediction on currency value stands to be achieved.

C: Issues for the consideration of multinational companies

There are several factors that need to be considered by a multinational corporation regarding the prospective exit of Greece from the Euro. However, some such concerns rarely focus on the implications of the bargaining model. Instead, the interests of the multinational firms that are engaged in production, importation from and subsequently exporting to Greece needs to be founded on the concerns that conflict with the bargaining model. It is essential for numerous concerns defining the operations of the firm remain evaluated with relation to how they affect the eventual performance.

Financing remains a key area of prospecting with relation to its contribution to the promotion of the revenue generation capacity of a firm. It is apparent that the quantification of the models to be engaged in the development of the financial muscle of a firm remains crucial to the promotion of its subsequent growth. On that note, the exit of Greece from the Euro would offer considerable setbacks on the ability of the involved multinational firms in promoting ideal business financing. Arguably, the concern of elasticity remains critical in the definition of the interests developed by the multinational players. A change in the currency would eventuate into either an elastic or inelastic scenario regarding the balance of payments for Greece. Therefore, the cost of implementing routine operations for firms sourcing capital outside the country stands bound to be swayed by the outcomes of the respective observations. On the other hand, firms borrowing their financing from within Greece are expected to tune accordingly with the change in currency since the promotion of internal product price parity is expected to be sustained.

A focus on the concern of trade balance allows the address of the effects extended to both import and export potential for the multinational companies located in Greece following the Euro exit. It is eminent that the focus of such firms needs to be oriented in two key dimensions. They include effects when both items focus on Greece and prospective outcomes when the interest is on the international community. Considering a single outcome where the Drachma edges the Euro in currency value, the results of both scenarios may be exceedingly different. Imports into and exports from Greece will tend to be considerate for the multinational company. Conversely, imports from and exports to Greece will be suggested to be considerably expensive. Essentially, the changes experienced by the respective concerns on exports and imports include the impression of the quantity of purchase or trade.

Economic development is also perceived as another factor to be taken into consideration following the exit from the Euro into the Drachma. It is eminent that the decision to join the Drachma may have a substantial impact on the trading blocs associated with Greece, as well as on the population. Both of the two items are expected to define the primary market targeted by the firm. Failure by either the domestic population or the neighboring trading blocs in embracing the Drachma might have some impact on the realization of economic advancement. In most cases, firms consider the economic development as ample grounds upon which to determine the prospects of investing in the domestic research and development initiatives. Despite Greece being a developed nation, the contribution of effects on economic development following the return into the Drachma may not be overlooked.

The importance of various items perceived to be of significant interest in the bargaining power of the host country needs to be evaluated. Returning into the Drachma may have some impacts on such abilities. Among them include the concern of incentives that define the subsequent description of the relationship shared by the government and the investing firms. It is palpable that the introduction of a new currency may have an impact on the desire to promote a culture of incentives for the existing firms. Greece may be convinced that the elasticity associated with the introduction of the Drachma may limit the need for enacting more incentives. In such case, the firms need to take advantage of the presentation and orient their output by the resultant benefits.

Another primary interest to the multinational companies resounds on the element of tax. It is noticeable that the reverting into the Drachma will involve a substantial amount of expenditure on basic concerns such as money printing. In such cases, the government may consider passing the fiscal burden to its economy partners through taxation adjustments. Therefore, the multinational firms are expected to comprehend the intensity of such a decision and its impact on their performance. It is only upon developing an insight on such an assumption that the ideal course of action may be pursued.

In conclusion, it is essential that the interest of the involved multinational firms will be vested on implications extended to the principle elements defining the two tire bargaining model. Concerns such as the influence of the currency reverting exercise on the promoted microeconomics need to be highlighted extensively. It is unmistakeable that the division of resources will be parcelled on the effects of the introduced Drachma. On such cases, the ability of the multinational firm in remaining viable desires to be emphasized. Also, it is expected that the involved authorities will make efforts towards the address of the developing concerns. It is further eminent that the interests of the multinational firms will be on the prospects of attaining a convenient environment in the host country. Besides, Greece needs the input of foreign direct investment in the definition of its activities. It would, therefore, be perceived reasonable for the host country to ensure that resultant eventualities do not scare the interests of their investment partners in the private sector.

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Free Study Resource | Checked 09/13/2017