Foreign Exchange Market Essay

Terms and Definitions Upon a company making the decision to move into an international market there are many economic terms, definitions and laws that are to be researched and understood. While there are lots of terms and definitions, five of these terms include: multinational corporations, economies of scale, imports and exports as part of GDP, foreign exchange market and exchange rates and marginal rate of transformation. Each definition will be researched and defined below and their importance

Trade expresses the buying and selling of goods and services for money. It can be made up of transferal or exchange of goods and services for money. Industrialists create the goods, then moves on to the wholesaler, followed by a retailer and finally to the final buyer (Akrani). Trade is necessary for the contentment of human wants. Trade is driven not only for the sake of earning revenue; it also delivers service to the consumers. Trade is an important social activity since the general public needs

prone to foreign exchange risk since the variability in foreign exchange rates impacts more on crude sales compared to its impact on purchase contracts. The Foreign exchange risk and exposure Risk relates to uncertainty in outcomes and foreign currency exchange risk occurs when there is uncertainty about the future foreign currency cash flows to an entity. Movements in Currency exchange rates are unpredictable hence constitutes risk to the entity. Studies on the exposure of companies to foreign exchange

System is a fixed exchange rate system that fixes the exchange rate of Hong Kong Dollar and United State Dollar to a ratio of 7.8: 1 Hong Kong Monetary Authority does not need to stable exchange market by controlling the supply and demand of HKD. It can be stabilized by Fixed-linkage System. In the past 15 years, Hong Kong interest rates and exchange rates fluctuated in the same trend of the US interest rate and exchange rate. The graphs below show an example of interest rate and exchange rate respectively:

• Disadvantages of Fixed Exchange Rates Developing countries are not worrying about the currency movements, they often plan to use the fixed rate system should limit the speculation and provide a stable system to allow importers, exporters and investors. A central bank ability limits the fixed rate system which the interest rate adjust the desirable for economic growth. When a Currency becomes over valued or undervalued this system adjust to prevent the market. If the currency is under pressure this

there are many reasons. One reason is that the firm is a market

its annual report, this company is exposed to risk from movements in foreign currency exchange rates, interest rate and market prices. The foreign exchange risks come from transactions and translations of foreign operations in Swiss Francs (CHF). The interest rate risk faces the borrowings at fixed and variable rates. The market price risk comes from commodity price and equity price. The former arises from world commodity market for the supplies of coffee, cocoa beans, sugar and others, the latter

currencies of the states of the Eurozone were discontinued and today the Euro is rated as a major reserve currency along with the Japanese Yen, US Dollar, British Pound and Swiss Franc. (Oanda, 2017) The exchange rate is very important to a multinational company. Exchange rate is the price of foreign currency stated in terms of domestic

having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.

with a shipment of computer chips that Sony is purchasing from Intel. Suppose that the current exchange rate is ¥103/$, that analysts are forecasting that the dollar will weaken by 1% over the next 90 days, and that the standard deviation of 90-day forecasts of the percentage rate of depreciation of the dollar relative to the yen is 4%. a. Provide a qualitative description of Intel’s transaction exchange risk. Answer: Intel is a U.S. company, and it is scheduled to receive yen in the future