Exchange Rate:
two main types of exchange rates:
Importance of Exchange Rate in Macroeconomics
The exchange rate is the price of one country’s currency in terms of another country’s curr
It tells you how much of one currency you need to exchange for another. For example, if 1 U
dollar equals 1,500 Nigerian naira, then the exchange rate is 1 USD = 1,500 NGN..
There are two main types of exchange rates:
* Nominal Exchange Rate: The actual rate at which currencies are exchanged in the market.
* Real Exchange Rate: Adjusted for inflation, it reflects the purchasing power of a currency
relative to another.
roeconomics
Colgate Palmolive - CP:
built on the Strength of its household and personal care products
Colgate Toothpaste and Palmolive soap
Major global force in packaged goods field and known for excellence
Chairman & CEO - Reuben Mark
Key to Growth in the world Market -
1. Strengthening current activities and
2. carefully introduce new products
CP coverage:
Sold in 100 countries
Manufacturing facilities in 54 countries
Major overseas manufacturing facilities in Australia, Brazil, Canada, Colombia, France,
CP Operations is organized into 7 divisions:
US, Mexico, France, Europe, Latin America, Asian-Pacific and Africa and the middle
Parent Operation is in US
Mexico and France where free-standing, CP largest subsidaries in sales and profit
CP Mexico operating results was separeted form that of Latin American divisin and
CP France from European division.
CP Mexico operation President Michael Tangney reported directly to Snr VP Roderick Turne
an
international VP
CP Mexico performance
Performed well to two oil price shocks 1970s.
New product launches - powdered cleansers and hand washing detergents kept it health
Mexico economy changes due to debts crisis in 1982 made CP Mexico a special concern amo
Mexico was relatively inexperienced in operating under hyperinflation
Annual Inflation rate forecasted at the beginning of the year was: 120%
Gross Domestic Product (GDP) was expected to slow to 1%
Mexico market was a year before the fastest growing in the world - the delcine of the US sto
percipiatted decline around the world
Mexican Stokc Market lost 75% of its value 5 weeks after hitting an all time high.
Nov 16 - 20 1987 had an annual budget meeting in Mexico city
Economic and Political Background
Mexico Economic policy between 1940s - 1960s was based on protectionism and import
The President in 1970 addressed the problem of depenedency on foreign capital throu
trade policy to limit imports and boost foreign exchange earnings
Impact of the action
Inflation previously non-existent since 1950 started to climb.
Exports dropped to a low level that deficit on external current account more than tripple
Peso was devalued by the Bank pf Mexico by 64.8%
CP Corporate Strategy
Goal: Increase profitability
Enhance shareholder value
15% RoC - Return on Capital
1984 Roc was 10.5%
Focus on low coast producer status
Launched and revitalized 277 products
Three core businesses
1. Household and personal care: 74% Total Company sales 56% Operating profit
2. Health care: 20% Total company sales and 26% Operating profit
3. Speciality Marketing: 6% Total company sales and 18% Operating profit
CP Mexican Strategy
Main goal: Improve market share with high-quality products
Working to improve dollar profits and remittance
Achieve budgeted profit
Profitable volume growth
Key Operating Policies in Hyperinflamationary Environment
CP Mexico : Products: 40 diferent products in 16 product categories
CP US: Products 43 in 13 product categories
Market Share: 70% to 90%
Price control by Mexican gov in 1960s on ssential hoseholdss
1986 the usage
Mexico housholds: 86% used laundry detergent
Dental creams: 83%
Liquid creamers: 35%
Scouring powder: 31%
Colgae mexico products were targeted at
Product segmentation:
Basic needs of Mexico 82million consumers
High and Middle Income group
Some producst are recession proof e.g Bar soaps and detergents
All buys were sensitive to price rises.
Marketing
With in 2 year the price for products has increased
Stopped the shi[ping of priuced controlled products
May was incharge of staying even with ifnlation.
Products : price controlled and noncontrolled
Credit Terms:
Price-controlled 21 days
Non-controlled between Household: 30 and 45 days
Perspnal care: with higher margin - 45 to 60 days
Hovernment account: demanded 10 - 15 days more than private sector.
90% of its business was in price-controlled categories
Expected Revenue : $18 million or 7% on incremental sales
P&G: Competitor
Sold in 4 categpries 1
exico and UK
co and UK
Protectionism refers to government policies that restrict international trade to protect
local industries from foreign competition.
Tariffs: Taxes on imported goods to make them more expensive.
Quotas: Limits on the number of specific imports.
Import bans: Prohibiting certain foreign goods entirely.
Subsidies: Financial support to local industries to help them compete.
Exchange controls: Restricting foreign currency availability to reduce imports.
Goal: To shield domestic industries so they can grow without being overwhelmed
by cheaper or more advanced foreign products.
Example:
Nigeria imposing a high tariff on imported rice to encourage local rice production
(e.g., the “Anambra Rice” push)
Import Substitution Industrialization (ISI) is a strategy that encourages local production
of goods that a country used to import.
How it works:
Impose tariffs/quotas on imported finished goods.
Provide incentives (e.g., tax holidays, low-interest loans) to local producers.
Encourage domestic investment in key industries (like cement, textiles, or food processing).
Over time, develop capacity to make intermediate and capital goods too.
Goal:
To reduce dependency on foreign goods, create jobs, and promote industrialization.
📌 Example:
Brazil in the 1950s–1970s used import substitution to grow its automobile industry.
Nigeria attempted it in the 1970s with its "indigenization" policies.
Inflation means:
* Things get more expensive
* Money loses value — it can’t buy as much as it used to
Types of Inflation: Creeping Inflation (0 - 3% per Year), Walking Inflation (3 - 10% per year),
Fiscal policy is the government’s way of using money to help the country stay healthy and s
Fiscal policy is how the government decides: (plans its budget)
How to get money (like from taxes 🧾)
How to spend money (like on schools , roads 🛣️, and hospitals 🏥)
Devaluation is when the government makes its money weaker compared to other countries
money,
like the dollar or euro.
Sometimes, the country does this to:
Make its exports cheaper (so other countries buy more of our goods)
Help local businesses grow (because imported goods become more expensive)
Foreign Capital: money that comes from outside your country to help businesses or the gov
Foreign capital can come from:
Foreign people or companies investing in local businesses (like building factories or sho
Loans from other countries or international banks
Gifts or grants from other countries (free money to help)
Foreign capital helps a country:
Build roads, schools, hospitals
Create jobs S
Grow businesses
A deficit happens when the government spends more money than it earns.
It earns money from taxes 💰
It spends on roads, salaries, schools, electricity, etc.
If it spends more than it gets, that’s a budget deficit.
Year 1960
GDP (1985 prices) 11.7
Population (millions) 36
GDP per capita (000 pesos, 1985 prices) 391
Exchange rate (ps./$) 12.5
GDP deflator (1985 = 100) 1.3
Implicit inflation rate (%) --
Real manufacturing wage (1980–82 = 100)--
Imports as % of GDP 14.6
Exports as % of GDP 17
Trade balance (% of GDP) -354
Government deficit (% of GNP) --
The bigger the GDP, the more products the country is making and doing!
GDP = Everything the country make and sell = Our country’s yearly report car
Exhibit 2: Colgate–Mexico — Balance Sheet (US$000)
Item 1985
Cash and marketable securities 8,336
Accounts receivable 12,774
Inventories 21,574
Total prepaid expenses -2,464
Total current assets 40,220
Total intercompany balances -512
Property, plant, and equipment
Land and buildings 1,940
Machinery and equipment 42,562
Total property, plant, and equipment 44,502
Depreciation and amortization -19,535
Net property, plant, and equipment 24,967
Miscellaneous investments 4
Total assets $64,679
Liabilities
Item 1985
Short-term debt 0
Long-term debt payable in one year 811
Accounts payable 9,248
Miscellaneous accruals 8,348
Total current liabilities 18,407
Long-term debt 1,247
Deferred liabilities 1,863
Common stock 26,533
Retained earnings 16,629
Total stockholders' equity 43,162
Total liabilities & equity $64,679
Exhibit 3: Colgate–Mexico — Income Statement (US$000)
Item 1985
Sales 217,205
Cost of sales 151,298
Gross profit 65,907
Media 9,583
Promotion 1,650
Total advertising 9,633
Total marketing and selling 4,287
Total freight and warehousing 13,095
General and administrative 20,546
Total operating expenses 48,561
Net profit before taxes 18,346
Total provision for taxes 11,331
Net profit after taxes 7,015
Galloping Inflation (rapid inflation above 10% per year), Hyperinflation (uncontrollable above 100 or
vernment.
1970 1980 1981 1982
23.1 43.8 47.2 47
51 69 71 73
462 634 665 644
12.5 23.3 26.2 96.5
1.9 10.2 13 20.9
11.7 34.2 27.5 60.8
69 94 99 100
9.7 13 12.9 10.3
7.6 10.7 10.4 15.3
-888 -3.4 -3.9 6.8
1.4 3.1 6.6 15.7
is making and doing!
country’s yearly report card!
Exhibit 4: Financial Comparison (1983–19
1986 1987 🧼 Colgate-Palmolive
8,087 950 Year
14,728 23,006 1987
24,178 24,927 1986
82 4,130 1985
47,075 53,013 1984
13 4,403 1983
1,940 1,940 🧴 Procter & Gamble (P&G)
45,921 49,701 Year
47,861 51,641 1987
-22,531 -25,182 1986
25,330 26,459 1985
1 1 1984
$72,419 $83,876 1983
🧼 Unilever
1986 1987
637 11,120 Year
70 5 1987
14,576 12,094 1986
5,973 4,090 1985
21,256 27,309 1984
18 0 1983
1,298 1,242
8,409 8,409
41,438 46,916
49,847 55,325
$72,419
Price-Controlled Products
Detergents
t (US$000) Hand dishwashing products
1986 1987 Laundry bar products
193,409 229,474 Toilet soap
136,902 158,386 Dental creams
56,507 71,088 Nonprice-Controlled Products
5,817 6,468 Powder cleansers
980 2,313 Liquid all-purpose cleaners
6,797 8,780 Fabric softeners
3,614 4,151 Fine fabric liquid detergents
11,075 11,285 Shampoos
13,952 26,342 Male hair preparations
35,438 50,558 Toothbrushes
21,069 22,530 Baby Line
9,908 13,653 All others
10,977 8,877
uncontrollable above 100 or thusand per year, Deflation (
1983 1984 1985
44.5 46.1 47.4
75 77 78
593 599 607
143.9 192.6 371.7
40.2 63.9 100
92.3 59 56.5
77 72 72
9.4 9.6 10.3
19 17.4 15.4
13.8 12.9 8.4
8.1 7.5 8.8
Comparison (1983–1987)
Sales Net Income ROE (%)
5,647 54¹ 12.7
4,985 177 11.2
4,524 109 10.2
4,985 72 10
4,855 198 11.8
Sales Net Income ROE (%)
17,000 327 7.5
15,439 709 12.6
13,552 635 12.3
12,946 890 18.4
12,452 866 38.8
Sales Net Income ROE (%)
29,790 1,361 24.8
25,368 982 17.5
24,205 748 16.9
18,670 583 13.6
19,410 559 12.3
Five-Year Average Growth in Tons (1982- Percent of Colgate-Mexico's Sales in
1986)b 1987 Colgate-Mexico
67%a 14-48%a
-3 25 Mar-22
6 9 Jan-57
-9 1 3-Mar
0 12 Jun-32
9 20 Jan-90
33 14-54$^*$
-4 2 Feb-80
7 4 Feb-18
27 8 Jan-90
6 4 Jan-90
17 9 Mar-22
-1 1 Jan-23
NA 1 Feb-13
4 3 Jan-40
NA 1
1986 1987
45.7 N/A
80 81
571 N/A
923.5 2,209.70
174 N/A
GDP Trend
50
74 140.0 (est.) 45
70 66 40
12.6 12.6 35
17.2 19.7 30
4.6 8.4 25
13.9 9.9 (est.) 20
15
10
5
0
1960 1970 1980 1981 1982 1983 1984
Population (millions)
90
80
ROC (%) Total Assets 70
6.2 3,228 60
50
40
18.8 2,846
15.7 2,814 30
11.7 2,568 20
14.9 2,664 10
0
1960 1970 1980 1981 1982 1983 1984
ROC (%) Total Assets
GDP per capita (000 pesos, 1985
7.5 13,715
700
8.5 13,055
9.2 9,683 600
14.1 8,898
500
— 8,135
400
300
200
100
600
500
400
300
200
100
ROC (%) Total Assets 0
1960 1970 1980 1981 1982 1983 1984
12.2 17,998
10.2 20,143
9.2 13,521
8.6 11,236
8.8 11,206
Procter & Gamble La Corona Del Centro Total
Competitors and Market Share$^a$
4-49% 3-27% 10-98%
Jan-42 1-Jan 3-100
1-Jan Feb-55 Jun-59
Mar-45 Mar-13 Dec-90
1-Aug Feb-98
Feb-83
1-Dec Mar-30
1-Jan Feb-98
Jan-98
1-Jan 3-18% Jul-41
Feb-23
Feb-13
Jan-40
GDP Trend
1981 1982 1983 1984 1985 1986 1987
Population (millions)
1981 1982 1983 1984 1985 1986 1987
capita (000 pesos, 1985 prices)
1981 1982 1983 1984 1985 1986 1987