The Exchange Rate Within The Global Market

Furthermore, when the government borrows all this money another problem is created called “crowding out.” The interest rates are increased because of the deficit spending from the borrowing. Hence, the financing needed by private businesses is more difficult as well as the purchasing of new equipment or construction of new factories. Government borrowing deteriorates the strength of the economy as well as builds debt. Private spending decreases when government spending increases. Stimulation from government into the economy should only occur once it has been given a chance to recover on its own and failed.

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

Foreign exchange rates are best described as simply the price of a country’s money expressed in another country’s money. In simple words, it is the rate at which a currency can be swapped for another. An example of determining foreign exchange rates is by substituting goods for currencies. Another example is the yuan-dollar exchange will depend on how well the demand and supply moves. When the demand for dollars in China climbs and supply does not go up correspondingly, each dollar will cost more yuan to buy. (Colander, 2010)

The foreign exchange rates are influenced by supply and demand of currency. When companies purchase services and products from other countries, they need to convert their money into the currency from the country they bought the product or service from. The value of the money is the exchange rate. When there is a demand

Journal written by Robert G.Rulland from Northeastern University and Timothy S.Dauprik from Univesity of South Carolina discussed about the foreign currency translation and behaviour of exchange rate. Consequently, the first controversy is which translation method provides the most meaningful translation gains and losses, for example which method provides the most reasonable measure of the foreign entity's exposure to movements in exchange rates. The second controversy is whether translation gains and losses should be reported in the income statement or whether they should be deferred and shown in the stockholders' equity section of the balance sheet. Two major controversies exist in the translation of foreign currency financial statements is first which translation method should be used, and the second is how should the resulting translation gains and losses be reported. When items translated at current exchange rates, translation gains and losses result. Translation methods vary as, to which balance sheet items translated at current and which at historical exchange rates. This paper proposes two criteria for settling these questions which are based upon the actual pattern of exchange rates existing between the U.S. dollar and other currencies .It is argued that application of these criteria would result in a more objective and economically meaningful translation process than exists under current rules.

The value of the dollar rising or falling to a country depends on market forces and economics in that country. The reasons why the dollar is rising or falling decides the desirability of the dollar rising or falling. When compared to another country's currency, it can determine whether it is an advantage or disadvantage to the country's economy. The reasons why the dollar is rising or falling can also determine a weak or strong economy and can affect the economy in good and bad ways.

However, speculation can only be expected to smooth exchange rate movements if underlying economic processes are relatively stable. If there is a great deal of uncertainty over future government actions and their economic impact, expectations will not be strongly held. Thus expectations can change dramatically from day- to-day, leading to rapidly fluctuating exchange rates.

Understanding the relationships among world currencies is vital to successful operations in a global economy. There is money to be made by managers who can effectively manage exchange rates in the course of their business dealings. There is money to be lost by managers who fail to recognize the significance of these rate relationships.

There are various factors that influence the exchange rate of a currency, such as: interest rates, current account balance, unemployment rate, gross domestic product, expectations on inflation rate, import and export capability of country, trade relationship of two countries, relative product price etc. In basic understanding these factors affect either demand or supply of currency and therefore exchange rate of currency. For example, if government of China determines the higher interest than USA then demand for Yuan in USA increases because foreign capital in china will increase due to potential higher rate of return on investment and by the law of supply and demand rate of Yuan too rises. Another example is China’s huge export amount which pushes the demand of Yuan in it’s trading partner nations, which is virtually all the world, subsequently leading to higher exchange rate.

If you ever traveled to a foreign country—preferably outside the tourist traps—and spent money, you probably had to exchange your domestic money for local currency. Regardless of where you made such a trade, such as at a currency exchange kiosk when you landed at the airport, the fact that you successfully transacted two, completely distinct currencies related by an exchange rate means that you were, for the briefest of moments, a participant in the nearly $4-trillion-a-day foreign exchange market, or forex. But it is unlikely that such a gargantuan turnover is the appreciable result of money changing by spendthrift globetrotters. Rather, in today’s globalized economy, any institution, from a small export business to a central bank, is liable to have a hand in the currency—and therefore the purchasing power—of a foreign country. While the foreign exchange market may seem like a complicated world of arcane finance, it is not only possible for you to actively participate in it, but there is a highly-developed infrastructure of individual or retail forex trading ready for your attempts to turn a profit from besting the ever-changing exchange rate between currencies. While a professional comprehension of forex trading entails far more practical and conceptual knowledge than this process paper can capture, good preparation and a methodical understanding of the fundamentals of forex practices can help you develop the basic skills to get started in retail forex trading.

• Large National Debt. To finance large national debts, governments often print money and this can cause inflation.

Chapter 1 Multinational Financial Management:An Overview 1. The commonly accepted goal of the MNC is to:  A) maximize short-term earnings.   B) maximize shareholder wealth.   C) minimize risk.   D) A and C.  E) maximize international sales.

The country of Brazil has been in existence since 1493 under Portuguese rule for more than fifty years. Located in South America, Brazil is the seventh largest country in the world and the most populated of all of the South American countries. Brazil received their independence from Portuguese in 1822. Prior to their independence Brazil became very diverse with a mixture of Indians, Europeans and Africans to work their growing labor demand. The Brazilian export experience began in 1504 when the country’s natives cut down trees to sell them to the Europeans. (Timeline, 2016) The growth of products in their natural environment made Brazil one of the major producers to the world exporting sugar, coffee, orange juice, tobacco, iron ore, and beef along with bananas, soybeans and cashew nuts (White T. 2014). Today Brazil economy is in turmoil with a large deficit and a declining economy with no clearance in site. My paper is going to describe the economic conditions and how the exchange rates reflect their future outcome in the global market. It will discuss how the supply and demand of the US dollar reflects the country’s exchange rate and what developments and market forces are driving the current status of the Brazilian currency.

Increased borrowing: As the government is running on fiscal deficit, it will borrow money from the citizens of the country or from the private sector. It will be in the form of long and short term government bonds and treasury bills. To fill the deficit as the government has raised money from outside, the borrowing on the government increases.

* In extreme circumstances the govt may increase the money supply to pay the debt.