Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 10

Value Chain; Currency Fluctuations In early 2011 Brazil's economy was flourishing in many dimensions, except for a significant and worsening trade deficit with China. The root of the problem was that the value of the Brazilian currency (the real) had increased by 10% over the Chinese currency (the yuan) over the prior year. The increased value of the real meant that Chinese imports were relatively cheap and Brazilian exports were relatively expensive, in currency fluctuation terms. The excess of imports over exports thus heightened the trade deficit. An analysis of the matter identified the relatively high Brazilian interest rates (at almost 11%) that attracted foreign investors and the Chinese government's ongoing efforts to keep the value of the yuan stable versus other currencies as the causes of the increasing value of the real relative to the Yuan.
Required Briefly explain how you would expect the currency fluctuation issues facing Brazil to affect the value chains of Brazilian companies.