Question

Subject is International Business.

What would be the effect on your business if your home currency is weak and your host currency strong?

REQUIRED

• Define what is meant by ‘home currency’ and ‘host currency’.
• List 3 issues that might arise if your home currency is weak
• Explain how the company might manage each of these
• Which of these issues is most critical to the business and why?

Answer 1

HOME CURRENCY

Home currency means the currency which is legal tender in the economy and issued by the monetary authority by the economy, or for the common currency area to which the economy belongs.

HOST CURRENCY

Host currency is the conversion of Home currency into another country's currency. It is valued according to the law of demand and supply in the market.

WHEN HOME CURRENCY IS WEAK

. When home currency is weak then the imports for home country will be more expensive but it's export will increase.

. It leads to low economic growth which can also leads to deflation in an economy and also become bigger risk for any country.

. Also aggregate demand increases which leads to demand pull inflation.

EFFECT ON BUSINESS AND COMAPNIES

. Exports of business will be increased as the goods will be more cheaper for other countries. This leads to growth of many small businesses.

. It will also increase the foreign currency for the economy, this will increase the exchange rate of the country.

. But if any business wants to import any good that will be more expensive for him to import the good from other country.

. This might give benefit in short time but for long run it will become a critical condition to handle the situation for all the businesses to handle it.

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