The exchange rate simply refers to the value of a currency in terms of another. In essence, the exchange rate of a country’s currency determines the strength of that currency, or its weakness in relation to other currencies. With the increased extent of globalization, currency exchanges have become commonplace in virtually all countries (Zhang). However, the US dollar remains the mostly used form of currency, and usually serves as a standard measure for all the others, which are demanded by the inhabitants of other nations, as well as those who wish to spend the currency forms in the other countries. It is imperative to note that currency can only serve as legal tender as desired when it is in the correct form. It is for this reason that currency …show more content…
The appreciation of currency implies the loss in its value, in relation to the currency of another country, or several currencies. Market forces, which tend to increase the exchange rate, are responsible for the depreciation of the US dollar, which is the currency of focus in this discussion (Zhang). Whenever there is a depreciation recorded in terms of the US dollar, the value reduces such that one will require more US dollars to make a purchase of a unit of the other currency with which it is exchanging, such as the Euro. In the event of the depreciation of the US dollar in relation to the Euro, the US dollar’s competitiveness increases. The reason for this increased competitiveness is the fact that the price of the goods from the United States will appear cheaper to the nations that use the Euro such that the exports level will …show more content…
The implication of such a scenario on the local industries is that their downfall is inevitable. Similarly, local goods will increasingly become difficult to market at least on grounds of prices (Zhang). Market liberalization is such that there is an increase in demand for items, whose price levels are lower irrespective of the country of origin, when all the other factors are held constant. When the value of the US dollar changes in vale, the sectors affected are those that take place in international trading activities because they are the ones who pay or receive payment in the currency form of the United States. It is for market liberalization that all interested parties can trade in the US dollar, alongside all of the other world’s currencies, by interactions of the market forces of demand, and supply, without necessarily the need for any interventions by the government
...lict. Neighboring countries will want to maximize their own revenues and in order to do so, they will set their own prices for goods and services.
So when the dollar is depreciating, the exchange rate becomes smaller. Exchange rate (foreign exchange rate, forex rate or FX rate) is the number of units of a given currency that can be purchased for one unit of another currency. The United States capital markets are becoming more attractive to foreign investors. Since the dollar is falling, it makes foreigner’s investment in the United States more affordable. Therefore, foreigners take this opportunity to invest in the United States.
The coins made in gold, silver and bronze were traded during Roman Empire and the shortage of coins created a barrier for money circulation. However with the establishment of paper money, a sophisticated banking, global clearing system and electronic money, the global financial system evolved with a worldwide framework of legal agreements. In the Global Financial market, foreign currencies issued by the world, countries are traded by the buyers and sellers using currency exchange rates. Now a day, it is very common practices of companies in one country to raise capital in a foreign country by listing their stocks on major foreign exchanges given the growth of equity markets are becoming more globalized (SNHU, 2015).
However, it is not every developing country will succeed in developing their economy after adopted free trade policies. There are many developing countries remain poor or even worse off since the prices of technology and manufactured goods that they import from developed countries are higher than the income that they gain from export their low price products such as agriculture which are major exporting commodities of many developing nations. Moreover, opening domestic markets also brings huge risks to developing countries which have not enough capability to compete with developed nations. For instance, after Zambia and Ghana opened their markets the rate of economic growth has fell suddenly because their domestic products cannot compete with foreign goods while the cost of imports were higher than income from exports (Byers, 2003). In contrast to its theory that free trade will improve the living standards of the population in developing countries, the effect of free trade, in reality, affects many people adversely in developing countries particularly poor people in countryside even though the state have economic growth. In Mexico, whereas its economy grown during the first half of the 1990s, there were a lot of people living below the poverty line which increased by 14 million from the mid-1980s (Byers, 2003). In the same vein, it is also possible to
The value of the US dollar relevant to other currencies is a major consideration for the Federal Reserve. If they prevent large changes in the value of the dollar, firms and individuals can comfortably plan ahead to purchase or sell goods abroad.
Around the 1930s, Brazil and Latin American began following the process of Import Substitution Industrialization, which lasted until the end of the 1980s. The ISI policies devaluated the currency in order to boost exports and discourage imports, followed by adopting different exchange rates for goods (Watkins). ISI in Brazil had an interesting effect; it created a three-prong system of governmental, private, and foreign capital being directed at the infrastructure and heavy industry, manufacturing goods, and the production of durable goods. The program worked at first, but then became a serious economic problem. When the 1980s came around Brazil realized that ISI policies lead to inefficient industries because of their lack of exposure to international competition, the policies ignoring the rural sector, and finally limiting the local producers.
The massive increase in the Chinese trading relations was fueled by the United States in the year 1979 through the normal trade relations between the two countries. In addition, the Chinese non-concession to the World Trade Organization (WTO) in the year 2001 also facilitated its trading activities with different countries including the United States (Kaplan, 57). However, trading relations with the Chinese have been uneasy resulting from the massive trade imbalances in the recent past, which grows exponentially. The protectionist policies of the United States especially in Washington and Beijing have been putting pressure on the Chinese to revalue their currency as well as protecting it from counterfeits, which may be of adverse effects to the trading relations. This paper gives a comprehensive discussion on the foreign trade relations with china. It further gives an elaborate discussion on the impacts of foreign tr...
In 1995 Austria joined the European Union (EU), and in 1999 they joined the European Monetary Union. The use of a common currency the “Euro” has facilitated trade and promoted economic stability for U.S. companies to manage pricing, balance accounts, and move products into Austria and throughout the EU member nations (“globaledge”, 2003). An unfavorable exchange rate for U.S. exporters turned positive in 2003 making the U.S. able to compete on more favorable terms in the near future.
...price and devaluation of the domestic currency to bring it back to A from A’ the country has to sell off its Foreign assets.
Exchange rate is the ratio at which a unit of one country currency can be exchange for another country currency.
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...
To put it simply, the exchange rate is a price. As with any other market, price is determined by supply and demand. Whenever they are not equivalent, the exchange rate would change. However, the reality comes to be far more complicated.
...y supply and this causes the collapse in the U.S. and elsewhere (Pinnell, Lecture notes, 3/23). Consequently, countries become very protectionist to protect firms at home and international trade collapses (Pinnell, Lecture notes, 3/23). Therefore, states must make decisions with reciprocity and consequences in mind (Pinnell, Lecture notes, 3/23).
The America motivates other countries actively to fight for access on the market of the USA and strengthening of the positions in this market. The USA is made only by 5% of the population in the world, but the economy makes more than one quarter of economic production (US market economy). Many countries want to be in cooperation with the USA. America is the most demanded and the confidential country for different transactions. Dollar serves as a uniform standard on which all currencies of the developed countries equally. In practice all participants of international payments are guided by dollar. Because of each country seeks to be in cooperation or rivalry with this economic power to have the relations with the world and international community.
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...