Question

What is your take on the how varying currency values in different countries influences commerce? How do exchange rates influence or help? Do you think this is an effective system? How else would you propose dealing with these issues?

Answer 1

There is an exchange rate mechanism that is prevalent in the global economy which will be continuously deciding upon the values of different currency in respect of one another through a fair price discovery mechanism by twin factors of demand and supply.

Change in currency value in different country will be affecting the trade and commerce because these will be affecting the value of receivables and payables by different exporters and importers regularly and this will also be impacting the current account transactions which will be impacting on the balance on the trade payments of the entire company.

Countries rate will be influencing either on the positive sides or the negative sides because it can have multiple effect onto the economy.

A decrease in the domestic currency exchange rate in relation to the foreign currency will mean that there would be increase of the exports but there will be decrease in the imports of the entire economy and that can have positive as well as negative effect

An appreciation of domestic currency in regards to the foreign currency will mean that the foreign goods are cheaper and there would be more imports and lesser exports and that can result in to unemployment also.

This is an effective system of proper determination which is continuously focused at determining exchange rate based upon fair price mechanism and this is transparent and liquidity driven.

One will deal with exchange rate fluctuation by taking positions into derivative contract such as forward contracts anf future contracts along with option contracts and swap contracts in order to eliminate the risk and they can also enter into risk sharing agreements, in order to proactively manage the fluctuation of the exchange rates.