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Explain factors that affect foreign exchange rates

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Prepare a case study analysis of the Blades, Inc.

1. Explain factors that affect foreign exchange rates.

2. Summarize the case and answer questions 1-6.

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The solution explains factors that affect foreign exchange rates for Blades, Inc.

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Factors Affecting Foreign Exchange Rates
First, foreign exchange rate is the price that one currency is exchanged with another (Parkin, 2008, p. 507). Second, this price can either appreciate or depreciate. Currency depreciation happens when the price or value of one currency falls in relation to another currency while a currency appreciation is when that value increases. These movements - appreciation and depreciation - are foreign currency fluctuations and are directly affected by the supply and demand for the currency.

The quantity demanded and supplied for a currency depends on the following factors:
1. Exchange rate
2. Interest rates
3. Expected future exchange rate

Exchange rate
The higher the exchange rate for a currency relative to another, the smaller is the quantity demanded for that currency in the foreign exchange market. This impact of the exchange rate on the quantity demanded for a currency results from export effect and expected profit effect. According to Parkin (2008) the value of the export of a country affects the quantity demanded for that country's currency, but on the other hand the value of the export also depends on the exchange rate. The higher expected profit ...

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