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How do companies survive when their own government makes it nearly impossible to exchange domestic currency for foreign currency?
Venezuelan Bolivar
"Rumor has it that during the year and a half that Venezuelan President Hugo Chvez spent in jail for his role in a 1992 coup attempt against the government, he was a voracious reader. Too bad his prison syllabus seems to have been so skimpy on economics and so heavy on Machiavelli."
Money Fun in the Venezuela of Hugo Chvez, The Economist, February 13, 2004.
Santiagos immediate problem is that he needs to get his hands on hard currency US dollars
He could not find anyone to sell him dollars His customers needed supplies and they needed them quickly, but how was he going to come up with the $30,000 the hard currency to pay for his most recent order?
Exhibit 1 Venezuelan Official and Gray Market Exchange Rates, Venezuelan Bolivar/U.S. Dollar (January 2002March 2004)
3.
24,200,000
$20,000
$20,000 $20,000
68,000,000 81,600,000
Create a financial analysis of Santiagos choices and use it to make a recommend a solution to his problem.
3. Vebonos Bonds
$20,000
59,460,000
The solution criteria is to find the "best" effective exchange rate for obtaining the $30,000. The CADIVI rate, if available for the first $10,000, is the first step. The reamining funds needed, $20,000, is obtained at the lowest possible cost via the Vebonos Bonds, where the exchange rate of Bs2973/$ is the cheapest solution.
Venezuelan Bolivar
Its not clear whether Mr. Chvez understands what a massive hit Venezuelans take when savings and earnings in dollar terms are cut in half in just three years. Perhaps the political-science student believes that more devalued bolivars makes everyone richer. But one unavoidable conclusion is that he recognized the devaluation as a way to pay for his Bolivarian missions, government projects that might restore his popularity long enough to allow him to survive the recall, or survive an audacious decision to squelch it.
Money Fun in the Venezuela of Hugo Chvez, The Wall Street Journal (eastern edition), February 13, 2004, p. A13.