WSJ- article # 4
“For a 46% Return, Bond Investors Go to Venezuela—If They Dare”
Venezuela is in the news- again. 46% returns on a bond versus 1.5% for a US T-Bond is a strong indicator that changes are knocking on the door of Venezuela.
Chapter 18 under the section of “Price Escalation” discusses inflation, exchange rates, and currency values. Imagine being in charge of product price, compensation, and information concerning Venezuela.
a. How would you set the price?
b. How would you handle compensation packages?
c. How would you explain inflation in Venezuela?
My answers would be a) I would ignore the market price and just set a price. The market does not exist. When people are starving and basic foods are scarce then the market must be created. Ethics would dictate a price reflective of market prices under normal conditions. B) compensation would be solely based on home country economics and time in the country would be limited to short stays. C) inflation is a terrible thing in large measures. Without a stable monetary policy the government- households- investors – and global institutes – are unable to control risk and are incapable of achieving stability which is required for long term growth.