Case Study
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Case Study
The foreign exchange rate is the cost when two or more currencies are exchanged. An open price is set by investors and can fluctuate on a daily basis. Some nations will not openly trade their currencies these are not able to be purchased by investors and are at a set value. Currency depreciation occurs when the price of one currency falls in relation to another. While a currency is depreciating against one currency it is possible for that same currency to appreciate against another. The changes in value of the currency are directly related to the supply and demand placed on that currency by investors. The supply and demand for any specific currency will depend on three factors the first is the exchange rate (About.com, 2011). The higher the exchange rate the smaller the demand is for that currency in the foreign exchange market. This is because it will cost more to convert that currency from one to another, the smaller the possible profit from that exchange. The opposite is true of a smaller exchange rate for a currency the larger the profit. The exchange rate will also affect the value of exports from that nation. If the exchange rate is too large the demand for products from that nation will fall or the prices must decrease for that product to remain competitive in the market. The next part that will affect supply and demand is the interest rate. The smaller the difference in interest rates the smaller the demand for assets will be from that nation with the smaller interest rate. This translates into a smaller demand for currency from that nation. The final piece of the puzzle is the expected future exchange rate. The higher the expected future exchange rate the smaller the quantity supplied and the higher the quantity that will be demanded for that currency.
The way Blades Inc. conducts business requires it to enter into many different business transactions between nations other than the one where it is headquartered. This includes...
The foreign exchange rate is the cost when two or more currencies are exchanged. An open price is set by investors and can fluctuate on a daily basis. Some nations will not openly trade their currencies these are not able to be purchased by investors and are at a set value. Currency depreciation occurs when the price of one currency falls in relation to another. While a currency is depreciating against one currency it is possible for that same currency to appreciate against another. The changes in value of the currency are directly related to the supply and demand placed on that currency by investors. The supply and demand for any specific currency will depend on three factors the first is the exchange rate (About.com, 2011). The higher the exchange rate the smaller the demand is for that currency in the foreign exchange market. This is because it will cost more to convert that currency from one to another, the smaller the possible profit from that exchange. The opposite is true of a smaller exchange rate for a currency the larger the profit. The exchange rate will also affect the value of exports from that nation. If the exchange rate is too large the demand for products from that nation will fall or the prices must decrease for that product to remain competitive in the market. The next part that will affect supply and demand is the interest rate. The smaller the difference in interest rates the smaller the demand for assets will be from that nation with the smaller interest rate. This translates into a smaller demand for currency from that nation. The final piece of the puzzle is the expected future exchange rate. The higher the expected future exchange rate the smaller the quantity supplied and the higher the quantity that will be demanded for that currency.
The way Blades Inc. conducts business requires it to enter into many different business transactions between nations other than the one where it is headquartered. This includes...