1. Why does a country like Venezuela impost capital controls?
The Venezuelan government established the Comision de Administraction de Divisas (CADIVI) to prevent the downward force on the bolivar and to manage the distribution of foreign exchange. Capital control helps keep stable exchange rate of bolivar, and it blocks inflation triggered by the weakened bolivar. Furthermore, it functions as a protective charge from the unstable global economy and avoids capital flight which means making sudden and possibly illegal transfer of currency from out of the country. From a political point of view, capital control makes Chavez’s authority confirm again.
2. In the case of Venezuela, what is the difference between the gray market and the black market?
The gray market uses a legal procedure to complete desires of government or goals of their policy which is usually regarded unstable. Even if its meaning is legal, it is commonly meant to be inappropriate and risky by political attendances. On the other hand, the black market indicates illegal currency exchange with uncertified companies or establishments in the country. In the black market, people approach someone who holds foreign currency off shores constantly such as local stock broker or banker. The exchange rate is decided by bargaining, generally within 20 percent range of the gray market rate.
3. Create a financial analysis of Santiago’s choices and use it to recommend a solution to his problem.
Santiago needs $30,000 to pay for his most recent order. CADIVI approved $10,000 at Bs1920/$ rate, plus extra Bs500/$ to expedite his demand. Then, the final rate for him is Bs2420/$ and the remaining funds he needs is $20,000. There are two alternatives for him to cover it. The first option is to use gray market and he can get Bs59,040,000 (Bs2952/$ x $20,000). The second one is black market. By using it, he can get Bs66,000,000 (Bs3300/$ x $20,000). Therefore, Santiago has to select the first choice that should...