Hard currency is basically the currencies that are used in developed countries. Hard currency are said to be hard because they are more stable and do not fluctuate in comparison to soft currencies. Currencies such as United States Dollars, Pound Sterling etc are the hard currencies. On the other hand, soft currency is more volatile and these currencies fluctuate more. Currencies of developing countries generally are soft currency. Week currency area also called soft currency (Levi, 2009). There are number of reasons that can cause the soft currencies to fluctuate a lot more than hard currencies and some of the main reasons include; economic condition of the country, political situation or political instability, etc (De Grauwe, 1988).
With globalization, organizations have crossed borders and many organizations are now operating in more than one country. As organizations are operating in different countries, it has resulted organizations to face new kind of issues and challenges. One of the issues or challenges that have to be faced is the exchange rate. Organizations that are operating in developing as well as developed countries face such issues because of the fact that they need to convert their profits in the home currency and with the value of soft currency fluctuating it is having an impact on the profits. Similarly the costs are also to be converted into the currency of the other country and this could influence the profitability and feasibility that the management has made (Levi, 2009). When an organization having its basis in USA invests in a developing country say India then the profits earned in Indian Rupee would be converted into the United States Dollars at the end of the year. So if the currency is further weakened, then it could decrease the profitability when converted into United States Dollars. So, in this way the investment decision could be influenced if the currency fluctuates too much.
References
De Grauwe, P. (1988). Exchange rate variability and the slowdown in growth of international trade. Staff Papers-International Monetary Fund, 63-84.
Levi, M. D. (2009). International Finance Fifth Edition. New Jersey, Routledge.
