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Foreign Exchange Market

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1. What are the functions of the Foreign Exchange Market? Would international commerce be possible without its existence

2. How do exchange rates affect individual international businesses? Do international businesses like stable rates or volatile rates? Explain.

3. Can firms that expand globally increase their profitability in ways that are not available to them in the domestic markets? What are the constraints on taking full advantage of the potential for increasing profits in international markets?

4. There are six different way for a firm to enter a foreign market? Provide a brief description of each of these foreign market entry strategies.

5. What are the factors that influence a firm's ability to sell the same product worldwide?

6. What are some of the steps that an international business can take to enhance the success of their expatriate manager program?

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What are the functions of the Foreign Exchange Market? Would international commerce be possible without its existence?

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1. What are the functions of the Foreign Exchange Market? Would international commerce be possible without its existence?

The FOREX market provides the physical and institutional structure through which the money of one country is exchanged for that of another country.

The FOREX market is the mechanism by which participants transfer purchasing power between countries, obtains or provides credit for international trade, and minimizes exposure to exchange rate risk. Transferring of purchasing power is necessary because international trade and capital transactions normally involve parties in countries with different currencies yet each party wishes to transact in their own currency.
Because the movement of goods between countries takes time, inventory in transit must be financed. The FOREX market provides a source of credit via specialized instruments such as letters of credit . The FOREX market provides "hedging" facilities for transferring foreign exchange risk to someone else more willing to carry that risk.

The FOREX market consists of two tiers, the interbank or wholesale market, and the client or retail market
Five broad categories of participants operate within these two tiers
Bank and non bank foreign exchange dealers
Individuals and firms conducting commercial or investment transactions
Speculators and arbitragers
Central banks and treasuries
Foreign exchange brokers

source: http://www.businessfaculty.utoledo.edu/pkozlowski/FINA3500/ch06.ppt.

It is indeed impossible to imagine the increasing international commerce in today's world without the existense of a forex market because of the important role it plays in today's international business scenario.

2. How do exchange rates affect individual international businesses? Do international businesses like stable rates or volatile rates? Explain.

Adverse changes in the exchange rates can significantly affect a firm's profit. Similarly,changes on favorable or positive side can significantly add to ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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