The goal of this essay is to give readers a better high level understanding of the term “exchange rate” and what to expect of exchange rates when conducting international business. To meet this goal, five scholarly articles have been reviewed and discussed in this essay. Topics discussed include: the trading market and what is traded, various types of currency traded on the market, who and what is affected by the exchange rate, factors that affect the exchange rate, and two major rate regimes. Understanding the movement of currency and the implications of the exchange rate is detrimental to international entrepreneurship.
Key Term and Why I Am Interested – Exchange Rate
Every day, U.S. dollars are being exchanged for euros, euros are exchanges for yens, and yens for dollars. This represents changes done on a market called the foreign exchange market. I chose to focus on exchange rate this week because it is extremely valuable to know how foreign trade and investment is allowed to happen by allowing businesses and consumers to “trade-in” one currency for another currency. This, of course, has a rate associated with it known as the exchange rate.
Explanation of Exchange Rate
In finance, the rate at which one currency will be exchanged for another is the exchange rate. “The value of a country’s currency directly impacts not only its households’ purchasing power and its corporates’ sourcing and marketing decisions; it also profoundly shapes global trade and capital flow patterns” (Chen, 2011). “International trade is the exchange of goods and services across international borders. The traded goods and services have a price and this price is determined by the exchange rate” (Afzal & Hamid, 2013). A key thing to remember is the exchange rate is a quick look to see the strength of one country over another.
Major Article Summary - “Factors Influencing Real Exchange Rate: International Evidence”
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