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 refers to the value of the currency of one county to that of another country. Exchange rate might be a sign of the strangeness of the economy of a country. For example if the exchange rate is high for a certain country’s currency, the country’s economy is considered to be strong. Exchange rate effect the marketing, production and financial decisions of a company. There are a number of reasons for it. Exchange rate my impact the prices and volume of the imports that a company makes to other countries. The prices of a product are not necessarily standard and in one currency in the whole of the world. I mean that not the product of each product produced by china is in Yuan in the international market. If the product is sold in the US market, the price is in Dollars, if it is sold in UK the price is in British Pounds and so on. Therefore, the managers should be cautious when they are predicting the exchange rates. The managers can use the interest rates as a predictor of exchange rates when they are dealing with short-term movements. Managers should also keep a check on the government financial institutions and its reserves as an indicator of the fluctuation in the exchange rates. The managers can do different kinds of analysis to predict the exchange rates. For example they can do a confidence factors, circumstances and trends analysis to better understand any expected changes in the exchange rates.