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    Banking and Exchange Rates

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    We normally think of currency and banking risks as being something confined to third world or developing countries. But events in the last few years such as the Euro crisis or the financial crisis in the U.S. have shown that not even the wealthy, developed countries are without risks on the financial side. So it is important for any company doing business in your country to carefully consider these risks that they face.

    After you've done some research about financial issues in your country, write a paper covering the following issues:
    1.The currency of your country. Is it stable? Does your country have fixed or floating exchange rates? Does the exchange rate fluctuate a lot?
    2.The banking system in your country. How safe is this system? Any recent banking crisis in your country?
    3.Overall does the financial system in your country make it easy or difficult to do business? What kind of steps would you recommend for a company doing business in your country to hedge or minimize their financial risks? Refer to at least one of the required readings from the background materials in your answer.
    Required Reading:
    Goyal, A. (2013, Sep 19). Dealing with currency volatility. Businessline
    Agarwal, O. (2009). Chapter 5: Foreign exchange risks. International Financial Management. Himalaya Publishing House, Mumbai, IND
    Avadhani, V. (2010). Chapter 7: Management of international transaction exposure. International Financial Management. Himalaya Publishing House, Mumbai, IND
    Also see attached:

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    Solution Preview

    The US dollar is a fiat currency. This means that the US government has declared the currency to be legal tender, however, the currency is not backed by a physical commodity, such as gold. The value of fiat currency is determined by the demand for the money and its supply, as opposed to the physical material that the money is made of. Fiat currency by itself has no value, other than that which the government prints on it.

    The US currency is fairly stable when compared with some other currencies, as it has been in high demand as a reserve currency worldwide for decades. The value of the US currency has, in general, declined over the years; however, in spite of the recent Quantitative Easing, which led trillions of dollars to be printed, the currency has held its value. There was no hyperinflation, in spite of many doomsayer predictions. In order to have hyperinflation, people have to dump their US dollars. This did not happen. On the contrary, many held on to their US dollars.

    The US currency exchange rate is the rate at which the US dollar can be exchanged for another currency. The US has floating exchange rates. In the long term, the US currency ...

    Solution Summary

    All questions have been answered in 721 words. Five sources are cited.