Understanding Exchange Rates and their impact on Management Financial Decisions.

Essay by crystyUniversity, Master'sA+, April 2005

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Understanding Exchange Rates

Section I - Introduction

Section II - Definitions and Examples

Section III - Systems and History

Section IV - Government Interventions and their Effects

Section V - Effects of the Exchange Rate on International Trade Relationships

Section VI - Other Related International Trade Considerations

Section VII - Conclusion

Section I - Introduction

Understanding the relationships among world currencies is vital to successful operations in a global economy. There is money to be made by managers who can effectively manage exchange rates in the course of their business dealings. There is money to be lost by managers who fail to recognize the significance of these rate relationships.

In an effort to better understand the affects of exchange rates, we need first to define the term exchange rate. This will require looking closely at the relationship between the exchange rate and global trade. We then need to discuss how these rates are determined and who sets the rate for each country.

Then we will examine the impact of these rates, both good and bad. While examining the impact of exchange rate fluctuations we will complete cost comparisons of similar goods in the U.S. and in foreign markets and discuss the effect of rate changes on the international market. This will provide us with the opportunity to discuss some of the problems caused by exchange rate fluctuation and review how trade and national economies can be affected.

With these discussions and reviews, we should be able to define and explain the exchange rate in layman's terms using everyday examples to demonstrate the differences in exchange rate and the potential for profit and loss as exchange rates fluctuate. The processes involved and the consequences of exchange rate fluctuations can be confusing. The importance of understanding at least the basics of exchange...