Question

Here is the context in which you should write your final exam. Bronner’s Christmas Store is one of the largest in America. Bronner’s currently has one store located in Frankenmuth, Michigan. Bronner’s has decided to open up a second store in Heidelberg, Germany. Reflecting on each chapter in our textbook, respond to each of the following questions as though you were hired to be a consultant to Bronner’s.

Please describe the exchange rates between the Euro and the Dollar. What are the exchange rate risk for Bronner's.

Answer 1

Dear Student,

The exchange rates between different currencies depend on various factors. If financial markets solely set exchange rates, they fluctuate substantially as short-term portfolio investors try to anticipate tomorrow’s news. If the government attempts to intervene in exchange rate markets through soft pegs or hard pegs,

There is no firm conclusion which exchange rate policies are best: floating, soft peg, hard peg, or merged currencies. The choice depends both on how well a nation’s central bank can implement a specific exchange rate policy and on how well a nation’s firms and banks can adapt to different exchange rate policies.

A national economy that does a fairly good job at achieving the four main economic goals of growth, low inflation, low unemployment, and a sustainable balance of trade will probably do just fine most of the time with any exchange rate policy. Conversely, no exchange rate policy is likely to save an economy that consistently fails at achieving these goals. Alternatively, a merged currency applied across wide geographic and cultural areas carries with it its own set of problems, such as the ability for countries to conduct their own independent monetary policies.

Following table suggest the exchange rates between the Euro and the Dollar

EUR	USD
1 EUR	1.07964 USD
5 EUR	5.39818 USD
10 EUR	10.7964 USD
25 EUR	26.9909 USD

*Exchange Rate Risk

• The exchange rate risk is caused by fluctuations in the investor’s local currency compared to the foreign-investment currency.
• These risks can be mitigated through the use of a hedged exchange-traded fund or by the individual investor using various investment instruments, such as currency forwards or futures, or options.
• Exchange rate risk isn’t completely avoidable but it can be mitigated.

Here are two ways to mitigate forex risk:

1) Invest in hedged assets: The easiest solution is to invest in hedged overseas assets, such as hedged exchange-traded funds (ETFs)

2) Hedge exchange rate risk yourself: Investors most likely have some forex exposure if their portfolio contains foreign-currency stocks or bonds or American depositary receipts (ADRs).

Thank You !!