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Essay / Research Paper Abstract
This 4 page paper examines the risk faced by all international businesses; exchange rate fluctuation. The paper considers why it occurs and the major influences before identifying different tools that could be used to reduce the risk to the business. The bibliography cites 2 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEintrisks.rtf
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Unformatted sample text from the term paper:
rates will fluctuate due to macro factors so there is nothing the company can do to minimise the fluctuations, but in understanding what causes exchange rate fluctuations the impact or
risk may be reduced. When looking at the value or price of a currency the role of supply and demand is the main
factor. Where there is a greater demand for currency the value against other currencies will increase, where the demand falls there will be a decrease in the value. There are
many factors that will impact on the demand for the currency. Demand may be impacted as a result of internal or external economic conditions, the political situation or even
interest rates. The political situation will be one factor which will determine the exchange rate. Where a political system is seen as stable and long lasting there will be a
greater stability to the currency meaning the value is less likely to fluctuate, where there is weakness or uncertainty this is reflected in the economic outlook of the country. In
turn this will then impact on the supply and demand of the currency, decreasing the demand and reducing the strength of the currency. Inflation effects the
demand for goods between countries, where inflation is high the result is an increase in prices (Nellis and Parker, 2000). This then leads to a preference to the imported goods
which are becoming relatively cheaper as inflation in manufacturing, or exporting, country is lower (Nellis and Parker, 2000). This will put pressure on the money markets and the home currency
will start to deprecate, as the demand for currency will be in the direction of the cheaper goods (Nellis and Parker, 2000). The price of goods in a country can
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