How do exchange rate changes affect a company’s marketing, production, and financial decisions? What predictors should a manager monitor to forecast exchange rate changes?
Exchange rate may be extremely volatile (Devereux & Engel, 2002). The main reason that exchange rates can be related to the marketing, production and financial decisions is the fact that the status of the exchange rate may influence the demands of the products that the company is producing and is marketing in the national or the international market. We can also think about a scenario where a company is paying wages to its abroad workers in the local currency of that country. The managers have to look closer at what the exchange rate is as this would directly be affecting what amount of money they have to pay if their basic currency is in dollars. So if the rate of dollars increase as compared to the local currency, less amount in dollars will be payable, but if the rate of the dollar decrease, more dollars would be paid out in wages to these employees working in the production or marketing units of the company based outside of a country whose national currency is in dollars. The rate of the currency also affects the types of products the people would chose to buy. If the products are imported with a base currency in US dollars, the rate of the product would be dependent on the exchange rate of dollars to the local currency. So if the local currency is cheaper than dollar, the product may be expensive and the majority of people may not be able to afford it. This would also impact the marketing and financial decisions that the manager might have to make in different ways. The marketing decisions would be impacted as the manager would have to look at the amount of products that can be sold in that market. The marketing campaign would then be shaped accordingly. The financial decisions would be greatly impacted by the exchange rate as a decision would be required to allocate funds for different business processes in which currency. The base currency or the local currency.