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    foreign exchange rate determination

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    The head of sales wants to discuss potential sales in international markets. The sales vice president has estimates of the number of units that could be sold in various international markets. However, he is not sure how they would be priced in local currency and what determines the value of currencies in foreign markets.

    I need to compose a memo on foreign exchange rate determination. Specifically, he wants you to articulate the factors that determine the value of foreign currency and how/why currencies move as they do.

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    Solution Preview

    Exchange rates constantly fluctuate or move and value of a currency continuously changes. The value or rate of foreign exchange is not always the same as it is prone to constant fluctuation depending on how the world economy is moving. The value of a certain currency increases depending on the actual demand for such currency. The more demand for a specific currency, the higher rates it will command. A currency that has been devalued or has a probably chance of being devalued will not be actively traded. A country's political or economic crisis can cause the devaluation of its currency.

    source: http://www.ezinearticles.com/?What-is-Foreign-Currency-Exchange-Rate?&id=266871

    In foreign exchange, the price of a currency pair is the market's expectations (at that time) of the value of that currency measured against another currency given the current and expected economic and political situation in the two economies.If, for example, an economy's ...

    Solution Summary

    I need to compose a memo on foreign exchange rate determination.