Article Dealing With Exchange Rate Fluctuation

571 words | 2 page(s)

An article named “A Fragile Accord? G-20 Currency Agreement May Be a Shaky Deal” dated February 2015 from The Wall Street Journal, dealt with exchange rate fluctuations and what measures the Global financial leaders are taking to curb its negatives effect. This paper gives a review of the article and also explains the effect of exchange rate fluctuations on our manufacturing firm.

Exchange rate can be defined as the price at which currency can be converted into another one. Exchange rates are useful when converting one currency to another, for example, during travel to another country (Talley, 2015).

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Just recently, Global financial leaders signed a currency agreement that is aimed at making exchange rates cheaper; this is in accordance with central bank policies. This is one of the final efforts to jump-start the process of global growth despite the exchange rate pressures continuing to build up around the world. The currency agreement could easily grow into a dispute due to the pressures (Talley, 2015).

The Global financial leaders can carry out a foreign exchange intervention to counter disorderly market conditions by slowing down rapid exchange rates moves. The central bankers and finance ministers advised that aggressive monetary easing labors by the central banks in Japan, Europe, and other countries were very important (Talley, 2015).

Foreign exchange intervention may lead to a fall say in the yen and euro, but these could create upward pressure on the foreign exchange of other countries and this might to lead to a decline in export competitiveness.

Recently, the dollar has achieved a decade-long high and is expected to continue rising; this is already leading to causing a buildup of tension in the U.S. Congress. The U.S. government seems to be satisfied to tolerate the dollar that is becoming stronger by the day. This is leading to growth benefits by offsetting any expected losses from weaker exports (Kandil, 2014).

Fluctuating exchange rates has had both positive and negative impacts on our international manufacturing firm. Constantly fluctuating exchange rates affects the cost of doing international business. Any changes in the conversion rates sometimes lead to massive gains or can wipe out every expected profit. For example, in June 2011, EUR 10 million was equivalent to $14 .4 million while in June 2012 it was worth less than $2 million. This is not an isolated case to our business only, a study by SunGard Data Systems revealed about 59 % of businesses of various sizes had experienced losses or gains and they were as a result of foreign exchange fluctuations in the previous years (Courdert el al, 2014).

Our company has learned to observe these issues when discussing business with international clients. Fluctuating exchange rates might lead to something that was considered a good deal in the beginning to change to a bad transaction a few months later. Organizations are, therefore, left to calculate the risks involved in doing business on international levels.

Our firm has employed the following approaches to counter negative effects of currency fluctuations:
Monitoring the changes especially when the company is not suspecting to experience high risk from the exchange rate fluctuations
Purchasing currencies in advance when they expect to make huge purchases and are not sure about the volatility of the currencies

Though exchange rates fluctuations pose a major threat to international businesses using Foreign exchange intervention can be used to the advantage of business where domestic tools are used for domestic/local purposes as barriers to intervention to acquire unfair advantage during business (Talley, 2015).

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