Question

International Business Case Study question for The Mouse that Roared: How is an actual exchange rate established on the global market? Can't find the solution on chegg even though chegg sells the 2nd edition case study book

Answer 1

Demand rate for any specific currency such as US dollars is determined by the supply demand relationship. For example if the demand of US dollars by Europeans increases then the supply demand relationship would definitely cause an increment in the price of the US dollar in relation to the euro. There are many factors involved in exchange rate between two specific countries but the main factors that are used by the specific countries are interest rate changes, and unemployment rate, inflation reports, GDP, manufacturing data and other commodities.

Dependency of the specific country on local commodity directly increases the strength of the national currency as compared to the international exchange rate. There is no uniform rule of determining commodities for a given currency and its correlation with the International exchange rates as it directly depends on various factors that are always changing across different countries.

Some other countries uses maintenance of the exchange rate that are set and mint in artificial by the government. These rates are usually does not fluctuating intraday and they are based on revaluation dates.\

P.S. - please leave a comment if any explanation is needed.