Essays on Foreign Exchange Rate

International finance

Question 1: Uses of the balance of payment data It is used in the recording of economic transactions of the residents of a particular country to the rest of the world within a given period. Current account shows the total net amount a particular country is earning if it’s in excess or spending when in shortage. It’s calculated by net income from exports fewer payments from the imports. While the capital account; deals with the recording of the ownership of the foreign assets. It involves the reserve account and loans and investments a country and the rest ...

(A case for a parent firm in a net oil exporting country with subsidiaries in a net importing country that has free market economy, politically stable, positive currency speculation and possibility of government defaulting on its debt)

Oil Prices and Exchange Rate

Oil price dynamics have a bearing on the ability of multinational to precisely model the future exchange rates. In most instances, in order to manage the foreign exchange rate risk that the firm is exposed in the international business arena, most multinational will hedge against the risks that are associated with exchange rate fluctuations. As a result, these multinationals minimize the possible ...

Modeling Exchange Rates

Oil price dynamics will have a bearing on the ability of multinational to precisely model the future exchange rates of the foreign exchange in the countries that they operate. In most instances, in order to manage the risk that the firm is exposed in the international business arena, especially on the foreign exchange rate, most multinational will hedge against the risks that are associated with fluctuations in the exchange rate thus minimizing the possible negative effect that a firm may experience (Jain, 2007). Therefore, in order to take a position in hedging facilities such as currency futures, the firm ...

Coca Cola most recent financial statements for the year the fiscal year ended 31st December 2015, addresses foreign currency exchange risk in Item 7A. Quantitative and Qualitative Disclosers about Market Risk (Coca Cola, 72). The company faces significant foreign exchange risk because it operates in 72 currencies and earns $23.934 billion from operations outside the United States (Coca Cola, 72). Coca Cola operates in over 200 countries and faces three types of foreign exchange risk, transaction risk, translation risk, and economic risk. The company manages its foreign exchange rate risk on a consolidated basis. The transaction risk is the ...

Forward Hedge

Spot rate US$ 0.74 Forward rate US$ 0.76 US $ received = 800,000*0.76 = US$ 608,000. If Novena Ltd. takes the forward contract they will exchange the Singapore dollars at the agreed forward rate of US$ 0.76 per Singapore dollar. Under the forward hedge Novena Ltd. will receive US$ 608,000.

Money market Hedge

Step I Borrow in foreign currency 800,000/ (1.07) = SGD$ 747,663.55 In the first step Novena Ltd. Should borrow in Singapore dollars. The amount of money borrowed should be the present value of the expected receipt discounted at Singapore borrowing rate. The present value of SGD$ 800, ...

Good morning ladies and gentlemen, my name is ____________. I am delighted to have this opportunity to talk about the basics of international trade. We shall consider some scenarios of international trade like what happens when a country has a trade deficit, the effects on GDP and exchanges rates and a few other issues that affect our economy. This reliance on imported goods negatively affects the local markets. The markets of locally produced goods dwindle in the face of stiff competition form the imported goods. This eventually leads to low production of the local goods ...

In economics, inflation can be explained as a persistent increase in the general price level of goods and services over a period of time. Inflation results in a reduction in the purchasing power per unit of money which means money losses it’s real value over period of time. The inflation rate is measured by inflation index . Inflation index shows the change in percents of general price index also called consumer price index over the period of time. (Mankiw, 2002).

There are described three types of inflation:

1. Demand-pull inflation which is caused by increases in aggregate demand due to increased private and government spending; 2. Cost-push inflation ...

International Trade and Foreign Exchange Rates

International Trade and Foreign Exchange Rates Trade surplus or deficit is usually used to analyze international trade. Speaking about U.S. economy, one need to use surplus of imports only, as the balance of trade this year in January was minus 38702 million dollars, meaning that the US imports goods more than exports (“United States balance of trade”, 2014).

Firstly, this is industrial machinery and equipment, at $731 billion. Almost a half in the category is crude oil ($313 billion). Also, fuel oil ($46 billion), petroleum products ($50 billion) and natural gas ($9 billion) is essential in it. Large amounts ...

Inflation can be explained as a consistent rise in prices of goods and services. Inflation affects the demand for money, exchange rates, and prices of goods and services. It reduces the value of domestic currency and alters the composition of a local currency (Madura, 2005). Reduced value of domestic currency affects an economy’s transaction ability in the international frontier. It implies investing much in a foreign state, but low levels of returns. With inflation, a country’s exports become less appealing to international traders. This implies fewer sales for local and international investors that create a trade deficit. It makes imports cost ...

- Plot the collected FX data on a graph showing the daily movements Figure 1: Daily FX exchange rates for different currencies The selected currencies are US dollar, UK Pound, and Chinese Yuan. To start with, the US Dollar has shown a tremendous increase within the period of between July 1 2010 and July 1, 2012. As shown in figure 1, the rate was low in July 2010 but increased with a very high rate to June 2012. The AUD and USD exchange rate shows the relationship between toe currencies in respect to daily FX exchange rates. The USD exchange ...

Introduction

The currency of a nation is used as a medium of exchange and reference in all domestic financial transactions of a country. With globalisation and integration of economies, international business has become a common phenomenon. International business requires buying, selling and exchange of money between two nations. Since, economies across the world have their own currencies and value of each of these currencies vary at any given point in time, relative value of one currency with respect to another becomes an important aspect during international financial transactions. This has concerted international focus on the concept of foreign exchange, which deals with the relative ...