Global Financing and Exchange Rate Mechanisms Paper

1465 Words6 Pages
Global Financing and Exchange Rate Mechanisms Paper

Global finance operations include financial procedures, such as accounting, financial planning and analysis, strategic planning, treasury, investor relations, and financial compliance. Exchange rate is the existing market cost for which one currency can be exchanged for another (Moffatt, n.d.). For instance, when the U.S. exchange rate for the Japanese Yen is ¥1.10, this means that 1 American Dollar can be exchanged for 1.1 Japanese Yen. The purpose of this paper is to analyze the exchange rate mechanism (Euro Currency Markets), to describe how this mechanism is used in global financing operations, and to analyze its importance in managing risks. The Euro Currency Markets,
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The United Kingdom (UK) has political and public skepticism in changing to the euro. The country believes that the euro is just a stepping stone to the formation of a European super state; also, by changing to the euro, the UK believes it will lose the ability to set interest rates, thus having unfavorable effects on their economy. Another concern is that the UK currency, Sterling, is a major part of their heritage. Even though the UK government has set five economic tests to be passed before the UK will join the Eurozone, the likelihood of the country joining may be rejected because public opinion is strongly against participation. As with any currency, there are advantages and disadvantages for the participating countries. Economically, the advantages of the euro include:
• Elimination of exchange-rate fluctuations - The euro eliminates the fluctuations of currency values across borders in those countries which have the euro as their currency.
• Price transparency - With price equalization between countries which have the euro as their currency, businesses can be more competitive.
• Transaction costs - With the euro, no exchanges are necessary within the Eurozone countries.
• Increased trade across borders – With elimination of exchange-rate fluctuations, price transparency, and the elimination of transaction costs, increase in trade is realized across borders of the Eurozone
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