######################################## #Written by David Tam, 1999. # #davidkftam@netscape.net Copyright 1999# ######################################## From tamda@ecf.toronto.edu Mon Jul 12 18:22:18 1999 Date: Mon, 18 Jan 1999 23:23:50 -0500 (EST) From: David Kar Fai Tam To: APS 424S Subject: #5-01/19/99-"Markets continue to drop on Brazil's currency woes" The Globe and Mail, Friday, January 15, 1999. B1, B2. The rest of the world is feeling the effects of Brazil's decision to allow its currency to devalue in the hands of the free market. Such an extreme move, in a world full of conservatives, caused many investors to worry about the side effects. Markets in North America, such as the TSE, Dow Jones, NYSE all dropped by quite a bit. This means many things to many people. First of all, since the real isn't worth as much in terms of the mighty U.S. dollar, foreign currency investors who invested in the Brazilian real lost money. This also means that many currency investors will cut their losses early and pull their money out, further worsening the problem. As for foreign investors in Brazilian corporations as opposed to just currency), their return on investment, which is in the real, will be worth less in terms of the U.S. dollar. Next, it means that Brazil is now competing against Canada for exports to the U.S. Now that the real is worth less, American's will see that products from Brazil are cheaper. This could have negative effects against Canada's exporters. In particular, areas such as metals and minerals could soon face tougher competition. Since much of Canada's growth has been associated with exports (and much of our GDP depends upon it), we may see less business activity in our nation. As well, banks who have loaned money to Brazil are being scrutinized by investors to determine the amount of exposure to Brazilian businesses. Such currency devalues generally have a negative effect on the economy. Corporations in other nations such as Canada and the U.S. face the possibility of a slower economy due to less trade flow of goods to Brazil. This is because Brazilians will be less likely to afford expensive U.S. imports. Some preventive measures for corporations would include targetting exports to a variety of countries. By avoiding heavy dependency on one country as a market, corporations will be practicing diversity, and reducing business risk.