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
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.
So when the dollar is depreciating, the exchange rate becomes smaller. Exchange rate (foreign exchange rate, forex rate or FX rate) is the number of units of a given currency that can be purchased for one unit of another currency. The United States capital markets are becoming more attractive to foreign investors. Since the dollar is falling, it makes foreigner’s investment in the United States more affordable. Therefore, foreigners take this opportunity to invest in the United States.
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
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).
While most foreign investors prefer to invest in dollar or euro denominated countries due to 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 offsets currency losses in certain areas through gains in other areas. Therefore, creating currency diversification.
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:
When it comes to doing business internationally the decision making is more complex. There are many interactions between each country that need to be addressed. In order for a business to be successful in the international market they need to examine and analyze all the facets of their company. They need
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).
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.
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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.
To put it simply, the exchange rate is a price. As with any other market, price is determined by supply and demand. Whenever they are not equivalent, the exchange rate would change. However, the reality comes to be far more complicated.
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).
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.