1.0 Introduction to Foreign Exchange Market There is one thing that differentiates the international business with the domestic business where it uses more than one currency in the commercial transaction. For example, if a company from British purchases some goods from a company from US, the international transaction will require for exchanging pounds and U.S. dollars which involve the foreign exchange market. In the foreign exchange market, any country that wish to do business with foreign country, the country need to convert their domestic currency into the foreign currency that they are wish to cooperate with through foreign exchange. The foreign exchange markets allow the conversion of currencies, where it helps the firms to conduct trade more efficiently across the national boundaries. In addition, firms can shop for low cost financing in capital markets all over the world and then use the foreign exchange market to convert the foreign currency that they got into whatever currency they require. With the foreign exchange nowadays, anyone can go to other country by converting their domestic currency into the foreign currency. The foreign exchange will follow the rate of exchange according to the country's rate. But still, the foreign exchange market is actually dealing with fluctuation where sometimes it has upward and downward movement. 2.0 Function of Foreign Exchange Market The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay... ... middle of paper ... ...rch 2014. Available at: http://www.wisegeek.com/what-is-hard-currency.htm#didyouknowout Retrieved at 6th April 2014 Currency Fluctuation, What is Currency Fluctuation, 2014. Available at: http://www.wisegeek.org/what-are-currency-fluctuations.htm Retrieved at 6th April 2014 Japanese Yen, Japanese yen: Indestructible Asian currency, 21st March 2012. Available at: http://english.pravda.ru/business/finance/21-03-2012/120845-japanese_yen-0/ Retrieved at 6th April 2014 What Forex Traders Need to Know About the yen, Investopedia, 2013. Available at: http://www.investopedia.com/articles/forex/japanese-yen-what-fx-traders-should-know.asp Retrieved at 6th April 2014 Japan’s rising yen and the decline of the US dollar, East Asia Forum, 2011. Available at: http://www.eastasiaforum.org/2011/10/01/japan-s-rising-yen-and-the-decline-of-the-us-dollar/ Retrieved at 7th April 2014
The coins made in gold, silver and bronze were traded during Roman Empire and the shortage of coins created a barrier for money circulation. However with the establishment of paper money, a sophisticated banking, global clearing system and electronic money, the global financial system evolved with a worldwide framework of legal agreements. In the Global Financial market, foreign currencies issued by the world, countries are traded by the buyers and sellers using currency exchange rates. Now a day, it is very common practices of companies in one country to raise capital in a foreign country by listing their stocks on major foreign exchanges given the growth of equity markets are becoming more globalized (SNHU, 2015).
Forex is an abbreviated name for foreign exchange. The Forex trading market is an around-the-clock cash market where the currencies of nations are bought and sold, typically via brokers. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. Forex trading market conditions can change at any moment in response to real-time events, such as political unrest or the rate of inflation. The purpose of this article is to give you an introduction to Forex trading.
Sukirno (2004) states that foreign exchange rates or foreign exchange rate is the price or value of a country's currency is expressed in another country's currency, or it can also be interpreted as the amount of domestic currency needed to get one unit of foreign currency. Meanwhile, according to Mankiw (2013) the exchange rate between two countries is a rate agreed resident of both countries for mutual trade with one another. Economists distinguish between the exchange rate being two (Mankiw, 2013), namely:
Historically, this is outlined in the domestic societal framework (a rationalist point of view dictating political outcomes as a direct result of domestic material interests in society). Whatever society wants, society gets, leaving the consumer is to benefit from a fixed exchange rate. Competition exists between all interests. Whatever interest dominates takes the winning interest. The winning interest, then, determines the outcome. With businesses facing pressure to decrease domestic prices, consumers now have the upper hand. (Wellhausen, 10-2-14). Thus, due to the enhancing credibility of the government, consumers also are to benefit from a fixed exchange rate. (Multiple governments
These companies include: Bixler, Italy who operates next generation telecommunications services based in IP networks, CMG (Computer Management Group) in London and does consulting, telecommunications and computing, Hutchison Global Communications Limited in Hong Kong they are also a private company that specializes in global communications and MEASAT Broadcast Network Systems Sdn. Bhd. in Malaysia, the company operates as a media and entertainment company and are mainly in Malaysia etc. While most foreign investors prefer to invest in dollar or euro denominated countries due risks associated with foreign currency, Microsoft has done an outstanding job allocating resources internationally making them this successful. In Chapter 7 of Mike Peng’s Global Business book there are strategies for financial companies to benefit from foreign exchange. For example: Strategic Hedging, this means companies can spread out their activities in different currency zones. This offset currency losses in certain areas through gains of other areas. Therefore, creating currency diversification. (Peng,
International investing is something that many investors find that they can benefit from for many reasons. Two of the main reasons why investors choose to invest in foreign markets are growth and diversification. Growth allows investors the potential to take advantage of new opportunities in foreign emerging markets. International markets can potentially offer opportunities that might not be available in the United States. Diversification allows investors to spread out their risk to different markets and foreign companies other than those just in the United States allowing them to potentially create larger returns on their investment as well as reducing risks. (U.S. Securities and Exchange Commission, 2012) While investing internationally can be a very lucrative and rewarding decision, there are also extra risks involved with investing internationally. One of the main risks that international investors encounter is foreign exchange risk also known as currency risk. Currency risk is a financial risk that is created by contact with unforeseen changes in the exchange rate between two currencies. These changes can cause unpredictable gains or losses when profits from investments are converted from a foreign currency to the United Stated dollar. There are precautions that can be taken by investors to potentially lower their risk of currency value fluctuations and other risk factors that are present in international investing. (Gibley, 2012)
International trade is very crucial for every business around the world as it is not possible to produce all goods and services within a country. There are some goods that are not available locally, so it needs to exchange the goods and services which are possible to execute with international trading. International trading is beneficial to businesses and it is very economical. Some of the benefits of international trading to UK business organizations are:
While the subject is often discussed, there still exists many misconceptions about what the exchange rate actually is. The exchange rate is the price of a foreign currency in Canadian dollars on the foreign exchange market. Like in any market, the price is determined by the intersections of demand and supply. Demand for a currency is made up of all those who want to buy or hold an asset in that particular currency. For example, importers need to convert the Canadian dollars into foreign currency in order to purchase foreign goods. Similarly investors who wish to hold foreign assets must pay for them in foreign currency and therefore need to convert Canadian dollars. The supply is made up of those wishing to buy Canadian dollars; these people include those buying Canadian export and those investing in Canadian assets. The intersection of theses two opposing actions, buying and selling Canadian dollars determines the volume traded and at what price or the exchange rate. Due to...
One type of exchange risk faced by multinational companies is transaction risk. If a company sells products to an overseas customer it might be subject to transaction risk. If a UK company is expecting a payment from a US customer in June and the invoice was made in January, the exchange rate is bound to have changed during the period. If the deal was worth £1,000,000 and the american dollar compared to pound sterling weakened from US$1.40 in January to US$1.50 in June, the UK company would loose £47,619 (Appendix A).
The forward Currency Exchange Market allows interested parties to trade forward contracts on currencies (Madura, 2006, p117). Forward contracts are an agreement between a firm and a commercial bank to exchange a specified amount of currency, at a specified exchange rate and on a specified date. Forward contracts are being used around the world to mitigate the risk of wildly fluctuating foreign exchange rates in day to day business transactions. Firms use the forward contracts when they know they will need a certain amount of foreign currency at a set date in the future, it allows them to lock in a future exchange rate (Wikipedia, 2006).
Floating exchange rate which is also known as fluctuating exchange rate or flexible exchange rate is an exchange rate regime where its currency is determined by foreign exchange market forces such as demand and supply of that currency relative to other currencies.
Although a relatively recent invention, currency swaps have quickly become a vital and widely used financial instrument. Given the steady increase in globalization, understanding the potential benefits of using currency swaps is essential to any modern multinational business. Currency swapping works just as the name implies – different national currencies are swapped between two parties for an agreed amount of time. Investopeia.com defines a currency swap as “two notional principals [of different currencies] that are exchanged at the beginning and at the end of the agreement” (Cavallaro, 2011).
Focus on one foreign exchange to develop your Foreign exchange abilities. Focusing around the interplay between two foreign currencies – ideally, possibly, and among them being your house country’s currency – will construct your knowledge of the Foreign exchange market. Learning two particular foreign currencies interact can help you develop a fundamental knowledge of how Foreign exchange interactions operate in general.
Following the acceleration of global economic integration, bunch of companies have embarked on the path of transnational operation. Companies with foreign capital for the international market, global companies need go to the international market. Accept the cultural differences to correctly use the marketing strategy of the company. As international vender, who are not only familiar with the internal market culture, but also to firmly hold the cultural knowledge of different countries, intercultural communication can maintain economic and commercial relationships between multinational companies, providing better marketing strategies to achieve the cross Companies of mutual benefit. This is a long process and requires the joint effort of all
As the foundation for the foreign exchange process, exchange rates are one of the most important elements in business, both internationally and domestically. Defined as the rate at which one currency may be converted into another, exchange rates are used by countries in order to purchase products or services from one another. When examining these exchange rates it is important to note that their two distinct types of rates used for global trade: nominal and real.