Exchange rate is the rate at which one currency can be exchanged for another country's currency. Exchange rate volatility refers to variation in exchange rate that occurs from time to time and it poses a great risk to the businesses which may lead them to lose money in case of investments. Volatility in exchange rate can lead to both appreciation as well as depreciation of domestic currency thereby leading to fall in exchange rate or the rise in exchange rate respectively. This volatility in exchange rate can arise due to variations in inflation rate, interest rate, current account deficit, terms of trade, economic instability, inflows and ouflows etc.. This volatility in exchange rate impacts businesses severly, if a business sells products in a foreign country and if exchange rate has increased leading to depreciation of domestic currency then, the business will face losses as it will now receive less money in payments as compared to the case earlier before depreciation.
also, for a business comprising of imports of raw material, a depreciation of domestic currency will again imply losses for the business as now it will have to make payments for the raw material in higher amount due to increased exchange rate. Also, on the other hand depreciation of domestic currency i.e, an increase in the exchange rate can lead to increased demand for exports thus having a positive impact on the level of production for an export business.
Exchange rate volatility affects not just multinationals and large corporations, but small and medium-sized enterprises as well, even those who only operate in their home country. While understanding and managing exchange rate risk is a subject of obvious importance to business owners, investors should be familiar with it as well because of the huge impact it can have on.Which types of risk are companies exposed to?
Explain the currency exchange rate in international trade? Explain the concept of a fixed exchange rate and floating exchange rate?
Foundations of Financial Management: Define and discuss what an exchange rate is and how exchange rates impact international business where firms do business in several currencies worldwide
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Please use 500 words explain how speculation in the foreign exchange market could affect the volatility of exchange rates and how will that, in turn, affect an MNC.
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Explain the meaning of the Stolper-Samuelson Theorem and how international trade affects the distribution of income.
Please explain in detail What are the differences between international business and international trade?
Briefly explain exchange rate theories: Interest Rate Parity (IRP) and Purchasing Power Parity (PPP) and the International Fisher Effect (IFE). How do these work?