Question

How do exchange rates affect international financial management decisions?

Answer 1

The conversion of domestic currency into international currency at a particular exhange rate is called as foreign exchange rate. With the rapid globalisation of the world,Foreign exchange rate helps investors to invest in funds and markets internationally. But there prevails the risk of foreign exchange when investors or organisations decide to invest in international financing activities. Exchnage rate affect the financial maanagement decisions both positively and negatively. When the changes in the price of one country's currency affect the exchange affect the value of another country's per unit of currency, there prevails uncertainity into the international financial management decision. Due to the fluctuating nature of exchange rates, investors always face the risk of exchange rate. If the domestic currency appreciates against foreign currency, the investors dealing with export of products face losses as export business become more expensive and compels firms to cut down the prices of their products. When the currency of a country depreciates, it will make exports cheaper which make investors earn profits but the importation of raw materials will go up.