Convert $1.00 U.S. to the currencies of five other countries (you can do this at www.xe.com/cc/). What implications do currency exchange rates hold for setting prices in other countries? How does this affect buying power? Why or Why not? How would this affect selling power?
Currency can be defined as a unit of value used to facilitate the exchange of goods, services, and monetary between companies or countries. It facilitates easy trades all over the world by setting standard rates or prices allowing different currencies to be exchange against each other. However, before starting trading with foreign countries companies should learn how to calculate the currency exchange rate for each country they want to do business with. The implications used in measuring currency rates and setting prices in other countries include spot exchange rate, forward exchange rate, bi-lateral exchange rate, effective exchange rate, and real exchange rate. With the Spot exchange rate, currencies rates are determined depending on the current market prices. According to Jim Riley (2006), the spot exchange rate determines currencies using “the FOREX market on a minute by minute basis on the basis of the floe of supply and demand for any one particular currency” (n.p). Second, the Forward exchange rate allows companies to predict or agree on a rate of a particular currency before any trades can be engaged. This technique often helps companies to manage and reduce the risks involved in currency exchange. Then, the easiest technique is the bi-lateral exchange rate. It is the rate that companies and individuals can use to exchange or trade against another currency. For instance, in one of my currency conversion I used the USD against the Euro and the Japanese Yen, which gave me $1.00 = 0.814399 EUR, and $ 1.00 = 79.5700 JPY. Another method to measure currency exchange rate is to use the Effective Exchange Rate Index or (EER). This method weights the value of sterling against a basket of...
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