The Venezuelan Bolivar Case Write-Up
During the early 2000’s, the destabilization of the Venezuelan Bolivar had tumultuous effects on the Venezuelan people and the business environment. Since Hugo Chavez was elected president in 1998, there were repeated recalls, resignations, coups, and reappointments in the Venezuelan government. Increased political risk and decrease business confidence in Venezuela caused the Bolivar to significantly decline in value during these times. Investors sought to exit the Venezuelan market or simply shift out of the currency into a “hard currency”. Capital flight intensified and caused the Bolivar to plummet. Markets collapsed and the inflation rate rose to 30%. The loss of value in the Bolivar is the cause of Santiago’s business problems. Santiago owned a pharmaceutical business in Caracas, Venezuela. The economic and currency collapse had deeply hurt …show more content…
The black market was illegal and could have serious consequences for Santiago. It worked through a stockbroker or banker who held US dollars in an offshore account. Santiago would have to deposit Bolivar’s into his brokers account in Venezuela. Only then would he be given access to a US dollar denominated bank account outside of Venezuela on an agreed exchange rate. The transaction took on average 2 business days to settle and the unofficial black market exchange rate was Bs3300/$. Although this exchange is quicker than the other two options there are serious downsides. The black market was dangerous and had no insurance, as if the transaction failed there was no legal recourse for Santiago, he could lose everything. Furthermore, it is the most expensive option at his disposal, which would hurt his margins even more. The only way Santiago would have to use this exchange is if he had serious pressure put on him through his vendor. Otherwise, the costs and risks associated with this market are just too
During the early 2000’s, the destabilization of the Venezuelan Bolivar had tumultuous effects on the Venezuelan people and the business environment. Since Hugo Chavez was elected president in 1998, there were repeated recalls, resignations, coups, and reappointments in the Venezuelan government. Increased political risk and decrease business confidence in Venezuela caused the Bolivar to significantly decline in value during these times. Investors sought to exit the Venezuelan market or simply shift out of the currency into a “hard currency”. Capital flight intensified and caused the Bolivar to plummet. Markets collapsed and the inflation rate rose to 30%. The loss of value in the Bolivar is the cause of Santiago’s business problems. Santiago owned a pharmaceutical business in Caracas, Venezuela. The economic and currency collapse had deeply hurt …show more content…
The black market was illegal and could have serious consequences for Santiago. It worked through a stockbroker or banker who held US dollars in an offshore account. Santiago would have to deposit Bolivar’s into his brokers account in Venezuela. Only then would he be given access to a US dollar denominated bank account outside of Venezuela on an agreed exchange rate. The transaction took on average 2 business days to settle and the unofficial black market exchange rate was Bs3300/$. Although this exchange is quicker than the other two options there are serious downsides. The black market was dangerous and had no insurance, as if the transaction failed there was no legal recourse for Santiago, he could lose everything. Furthermore, it is the most expensive option at his disposal, which would hurt his margins even more. The only way Santiago would have to use this exchange is if he had serious pressure put on him through his vendor. Otherwise, the costs and risks associated with this market are just too