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Par   •  7 Novembre 2018  •  TD  •  474 Mots (2 Pages)  •  485 Vues

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1.Explain how the movement in a currency's exchange rate affects the activities of companies doing international business.

International business is strongly linked and also dependent on the exchange rate, as soon as a company or an investor operates internationally. it is confronted with the notion of this exchange rate, which is very determining for its activities .

Like the interest rate market, the foreign exchange rate is also a risky market. As soon as they operate internationally, companies or investors are confronted with the exchange rate, which is the main determinant of international trade. Moreover, the exchange rate is determine throughout the purchasing power parity and the status of the relationships in economic between a country and another foreign country.

However, this instability of rates does not affect only the people making business but also all players in this market, economic operators, tourists, businesses, institutions, governments etc.

For a company, these fluctuations represent two types of risk: the transaction risk, and the risk of loss of competitiveness. The transaction risk is due to international imports and exports which involve payment and settlement deadlines. During these delays, the instability of exchange rates can affect more or less the amount of the bills that will be converted into local currencies. The risk of loss of competitiveness: the risk of exchange rates may affect more or less the competitiveness of a product, which may be more or less expensive for foreign buyers, according to the value of their currency.

2. How can companies export successfully when their home country currency is strong against foreign currencies? Give specific examples of what the companies can do.

Companies are able to export successfully when their home currency is strong because they are more able to innovate and pay the cost of production. They still have to remain smart and precise in their move in order to be successful in exportation when the currency is strong. For example, if a company produces its products somewhere else in the world than on his own country, it will become less expensive to produce and then afterwards the product will become the sell will be more expensive due to the strong currency. So, the profit will actually increase.

But generally speaking, when goods and services from companies become more expensive, the quantity of goods and services exported go down. However, since every goods and services is now more expensive than it used to be, companies are more likely to make profit out of every item.

As another example, let’s say that many American companies buy French products, the French companies will receive dollars but have to pay the employees and their taxes or costs in Euros (if they have not relocated). The French companies will sell the dollars and buy euros when the exchange rate is more to their advantage in order to make money as much as possible.

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