Importance of Exchange Rates in International Trade - Desklib

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note

1
FINANCE
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................2
Question 3........................................................................................................................................3
Question 4........................................................................................................................................3
Question 5........................................................................................................................................4
Reference.........................................................................................................................................6

2
FINANCE
Question 1
The businesses which are engaged in international trade must consider the impact of
exchange rates and their fluctuations on the profitability of the business. The importance of
Exchange rates which can be identified are listed below in details:
 Exchange rates form a part of the costs of the business which is paid as commission by the
business for converting one currency to another (Blonigen & Piger, 2014).
 In addition to this, for a business or country which is engaged in the international trade, the
exchange rate is very important for the purpose of converting the revenue earned in foreign
currency into domestic currency.
 Exchange rates are subjected to wide range of fluctuations depending on foreign market
conditions and therefore they can create significant risks which businesses needs to
consider and also plan for mitigation.
 The exchange rates fluctuation also has impact on the Balance of Payment of a Country as
export and import prices are depended on such exchange rates.
Question 2
Currency Appreciation refers to rise in the value of currency of a domestic country and
the same has the impact of increasing the imports in a country as the same becomes quite cheap
while exports becomes very much expensive. Therefore, from the question which is provided the
exporters are the losers or the country which is engaged in exporting becomes the loser as the
costs increases as well as the aggregate demand for products fall. Similarly, importers or the
country which is engaged in imports are the gainers as the value of the currency on the rise
means that the products are available in the country at a much cheaper rate (Rogmans & Ebbers,