Question

Impact of Foreign Exchange Market for International Business

Answer 1

The real impact of foreign exchange markets on international business become clear when multinational corporations. Capital market and money market investors target the trading blocs and specific countries for investing their foreign currencies. The ways in which businesses are affected by currencies can be roughly divided into transactional, translational, credit and liquidity risks. All four of these categories can then be subdivided a number of times to fit any and all kinds of businesses.

1. Supplier payments: When paying a supplier, it’s this exchange rate exposure that can make a difference to your business. While supplier payments and exporting are some of the more upfront ways in which exchange rates can affect you and your business, there are excess of ways currency volatility can trickle into your business.
2. Spot transfer: A spot transaction is arguably the simplest way to transfer money across borders. Enquire at any currency specialist to receive a rate quote (this will usually be the interbank rate with a spread applied), once this is booked you send the broker the funds for the trade, which are then sent on in your chosen currency.
3. Forward contracts: If you want to secure a rate but aren’t yet ready to make a transfer, you can choose a forward contract to fix a rate today for a specified date in the future. The great thing about a forward contract is that you know now exactly how much you’ll get when you’re ready to transfer.