Value Chain; Currency Fluctuations In 2011–2013, Brazil’s economy was flourishing in many dimensions, except for a significant and worsening trade deficit with China in 2011–2012. The root of the...

Value Chain; Currency Fluctuations In 2011–2013, Brazil’s economy was flourishing in many dimensions, except for a significant and worsening trade deficit with China in 2011–2012. The root of the problem was that the value of the Brazilian currency (the real) had increased by 10% relative to 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% throughout this period) that attracted foreign investors. In contrast to the above scenario, the value of the real fell 120% relative to the yuan from January 2012 to January 2016. From January 2016 to the time of this writing (June 2017), the real has risen approximately 30% from its low in January 2016. But the real is still at historical lows. Some say the real was overvalued, and the reduction helped to get the currency exchange back into balance. Others say the reduction in value was due to capital outflows from Brazil and a loss of confidence in the country’s economy. Required Briefly explain how you would expect the currency fluctuation issues facing Brazil to affect the value chains of Brazilian companies.