Currency Exchange Essay

Submitted By Arlena-Johnson
Words: 653
Pages: 3
Open Document
Name: Arlena N Johnson
Course: BUS 101
Date: 4/18/15
Currency Exchange

Foreign Currency Exchange Rates
In simplest terms, exchange rate can be defined as the quotation of national currency or the standing of the country’s currency against the foreign ones. Foreign exchange rates can also be explained as the amount of one currency that must be given for the acquisition of one unit of another competing currency. Therefore, it would not be incorrect to say that an exchange rate in fact serves as a conversion factor, or in other words, a ratio or a multiplier. However, it is dependent on the direction of conversion.
Considering the idea of exchange rate from a slightly different perspective, it can also be observed that exchange rate is a “price”. In cases where the exchange rate moves freely, the rate can convert to become the fastest moving price in the world’s overall economy, thereby bringing together all the foreign goods with it.
Importance of Foreign exchange Rate:
The biggest factor that makes foreign exchange important for all countries is its ability to facilitate global commerce. All financial entities such as banks as well as corporations and individuals keep a track of the foreign exchange prior to their agreements for selling and buying of goods and services on an international level. However, it is to be kept in mind that several distinct risks are associated with operating a business in an international environment.
On a national level, the reserves of foreign exchange are maintained in order to influence the national currency rate and for proper economy management.
It becomes possible for a country to export goods at a cheaper rate in if the exchange rate is lower, thereby benefitting the country’s economy. In other cases, if the exchange rate is higher, it will enable the local consumers use imported goods since their buying power is increased. Foreign exchange reserves are frequently used by treasury officials when they need occurs to buy back the national currency from the market which is primarily a step taken to strengthen the value of the currency (D. Evans).
Due to the fact that there are different factors that determine foreign exchange rates, there exist numerous differences in the foreign exchange rates of different countries.
Differences in foreign exchange:
Exchange rates are relative, and are expressed as a comparison of the currencies of two countries. The following are some of the principal determinants of the exchange rate between two countries.
1. Differentials in Inflation
It is a general rule in the economy that a country that
Show More

Related Documents: Currency Exchange Essay

Essay on Floating Currencies and Exchange Manipulation

Floating Currencies and Exchange Manipulation Money makes the world go round. Currency, one could argue, is like a religion; belief in the power of a specific type of currency can empower it, or reduce it to shambles within a remarkably short period of time. Regardless of how much power a currency has, there has to be belief in it from its user population to give it value or it remains exactly what it is—paper and ink. Of the 193 states of the world, there are almost an equivalent number of currencies…

Words 1880 - Pages 8

Foreign Exchange Market and Currency Board Arrangement Essay

Question 2  2. “A country is always worse off when its currency is weak (falls in value)”. True, False or uncertain? Explain your answer. 4 Question 2  Effects of weak currency: ◦ Negative: More expensive to purchase foreign products or travel aboard. More cost for importing. ◦ Positive: Increase the demand for domestic products and services. Increase domestic employment. Good for exporting.  The statement of ‘A weak currency is always worse off’ is FALSE. Question 3  3. If the dollar…

Words 939 - Pages 4

Research Papers On Exchange Rates

Exchange rates Homework Chapter 23 1- Definitions: a) Exchange rates are the values of one currency for the purpose of conversion to another. b) Foreign exchange markets are markets where currencies are traded. The foreign exchange market is the largest in the world. c) Fixed exchange rate systems are generally used to keep a currency stable. It works by fixing the value of one currency to another currency or a valuable commodity such as gold. d) Flexible/floating exchange rate systems is a system…

Words 785 - Pages 4

Macro Essay

What is an exchange rate? An exchange rate is the rate at which one currency is exchanged on another one. Exchange rates can differ from country to country. The main variables that affect exchange rates are the general balance of the economy, monetary and fiscal policies, the state of the budget, international policy, the purchasing power of the currency, and other internal and external factors. As we look at the world exchange rate as a whole it shows us that the world community as majority has…

Words 1898 - Pages 8

Essay about Fixed Exchange Rates

Fixed Exchange Rates and Exchange Market Intervention Chapter 18 1. Central bank intervention in the foreign exchange market 2. Stabilization under …xed exchange rates 3. Exchange rate crises 4. Sterilized intervention 5. Historical …xed exchange rate systems 1 Central Bank Intervention in the Foreign Exchange Market 1.1 Central Bank Balance Sheet Assets domestic government securities foreign exchange reserves gold Liabilities currency private bank deposits (bank reserves) Base money…

Words 1146 - Pages 5

Global Financing Essay

and Exchange Rate Mechanisms Currency Hedging Randal Shell MGT/448 Jun 3, 2013 Edward Ben Douglas Global Financing and Exchange Rate Mechanisms Currency Hedging As business continues to expand globally, organizations are finding it necessary to pay close attention to the foreign exchange markets. Companies must follow the foreign exchange market more closely and in turn develop appropriate hedging strategies to protect their interests. Exchange rate risk is the unexpected exchange rate…

Words 984 - Pages 4

50041819 MGT448 MGT 448 Week 5 Individu Essay

and Exchange Rate Mechanisms Global Business Strategies - MGT 448 Introduction Business constantly grows into international organizations finding it essential to pay close attention to the foreign exchange market. These types of organizations are required to follow the foreign exchange market in depth and must develop suitable hedging methods to protect them. Exchange rate danger is the unpredicted exchange rate which may cause a company to lose or earn income. Foreign currency hedging…

Words 1051 - Pages 5

Essay on The Impact of Exchange Rate on International Trade

commodity prices, exchange rate policy and other national policy. In this paper, the impact of exchange rate on import and export trade was analyzed, and then describes the response from the three aspects of changes in exchange rates in general response: Select diversification of import sources, select a reasonable settlement currency, full use of international financial instruments. [Keywords:] exchange rate system, import and export trade 1, the exchange rate impact on…

Words 1771 - Pages 8

Currency Hedging at Aifs Essay

Q1. What gives rise to the currency exposure at AIFS? * Currency exposure is the extent to which the future cash flows of an enterprise, arising from domestic and foreign currency denominated transactions involving assets and liabilities, and generating revenues and expenses, are susceptible to variations in foreign currency exchange rates. * AIFS organizes educational and cultural exchange programs throughout the world. AIFS receives most of its currencies in American dollars (USD but…

Words 1633 - Pages 7

Essay about Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures

appreciating foreign currencies. Furthermore, the formulated objectives imply that balance sheet exposure or translation exposure, respectively, are completely ignored within GM Corporation’s foreign exchange risk management policy. Here the essential assumption could be that multinational companies, like GM Corporation, having business in many countries and regions are able to compensate the impact of currency volatility in the value of assets and liabilities through devaluation in one currency with revaluation…

Words 2328 - Pages 10