Bus626 Week 3 Discussion Forum 2 Responses Guided Response

Bus626 Week 3 Discussion Forum 2responsesguided Responsein Your Re

Provide responses to at least two classmates' posts regarding their perspectives on the national debt, fiscal policy, foreign exchange risk strategies, and working capital management. Responses should be substantive, offering additional insights or contrasting viewpoints based on the week's readings, with a minimum of 100 words each. Use credible sources and proper citations to support your arguments. The goal is to foster meaningful discourse by critically engaging with your peers' analyses and integrating economic concepts discussed in the course.

Paper For Above instruction

The topic of the national debt and fiscal policy is central to understanding a country's economic health. As Lisa Schreiner emphasizes, persistent deficits can threaten future economic stability by raising borrowing costs and reducing investment capacity. She argues that current government spending, especially on programs like Social Security, Medicare, and Medicaid, risks unsustainable debt growth. Supporting her view, the Committee for a Responsible Federal Budget (2018) warns that large deficits during economic expansions can lead to inflation and higher interest rates, hampering growth (Committee for a Responsible Federal Budget, 2018).

Conversely, John Tamny advocates for a more balanced view, suggesting that some level of debt is acceptable if it funds productive investments that stimulate economic growth (Tamny, 2020). He asserts that limiting government spending and encouraging private sector development can help manage debt sustainably. In responding to Lisa, one might argue the importance of structural reforms focusing not only on cutting entitlements but also on fostering economic expansion through innovation, as Tamny suggests. Such strategies could enhance revenue without disproportionately increasing the debt burden.

Regarding strategies to mitigate foreign exchange risks, Christopher Rich highlights the importance of timing currency exchanges and using interest-bearing accounts to hedge against volatility. He suggests that deferring foreign currency transactions during unfavorable exchange rate movements can protect profitability. Supporting this, Brett Beatty notes that firms like John Deere experienced losses due to unfavorable currency fluctuations, which can be minimized through hedging techniques such as forward contracts (Berk & DeMarzo, 2020). Both emphasize proactive financial management to mitigate exchange rate risks, with Rich focusing on timing and holding strategies, and Beatty advocating for derivatives-based hedging tactics.

Comparing their perspectives, Rich advocates for opportunistic hedging by waiting for favorable rates and managing currency holdings, aligning with the use of financial instruments to hedge foreign exchange risk. Beatty emphasizes the use of forward contracts and timing to prevent adverse impacts. Both strategies are well-supported by financial management principles. However, they differ in approach: Rich prefers operational hedging, while Beatty advocates for financial derivatives, illustrating the range of strategies firms can employ based on their risk appetite and resources (Madura, 2019).

Finally, in examining working capital management, Nichole Mitchell underscores its significance in supporting firm growth and liquidity. She provides detailed figures from John Deere's balance sheet, illustrating a healthy level of current assets relative to liabilities. She suggests that maintaining adequate working capital helps firms navigate seasonal fluctuations and economic uncertainties. She supports her view with theory indicating that efficient management of current assets and liabilities ensures liquidity and operational stability (Gwartney, Stroup, Sobel, & Macpherson, 2018).

In contrast, Iftear Naser emphasizes minimizing liabilities to enhance profitability, noting that high long-term borrowings can strain working capital, especially when interest rates rise. She recommends reducing liabilities to improve profit margins, citing the liquidity premium theory to explain the impact on borrowing costs. Both perspectives are valid; Mitchell focuses on maintaining sufficient working capital for operational flexibility, while Naser highlights the importance of liability reduction for financial health. Effective working capital management requires balancing these strategies to ensure liquidity without over-leveraging.

References

• Committee for a Responsible Federal Budget. (2018). The deficit has never been this high when the economy was this strong. Retrieved from https://www.crfb.org
• Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.).
• Madura, J. (2019). Financial management: Theory & practice (15th ed.). Pearson.
• Tamny, J. (2020). Popular economics: What the Rolling Stones, Downton Abbey, and LeBron James can teach you about economics.