Chapter 11, Problem 11.9Q

To determine

Introduction: A countries’ currency is much like other commodities, and the exchange rate fluctuations occur because of a number of economic factors influencing the supply and demand for the nation’s currency. If a nation is facing a high level of inflation, the purchasing power of its currency decreases. This decrease in the value of a currency is reflected by a decrease in the positioning of the country’s currency comparative to the other nations’ currencies, other factors causing exchange rate fluctuations are the balance of payments of a country, changes in the exchange rate, and interest rate and investment levels of a country. The stability and process of governance will also contribute to the exchange rate fluctuations.

To explain: Some of the ways a U.S. company can manage the risk of changes in the exchange rates for foreign currencies.