Operating in a Euro Country
Introduction
This article will continue the discussion regarding an investment in Euro from U.S. Dollars. Particular attention will be paid to volatility of the Euro to the U.S. Dollar and how that volatility affects the exchange rate risk for this trade. A recommendation will then be presented to American companies doing business in Europe based on the analysis.
Current Investment Value
The original investment of $202,995 on 25 November, 2013 purchased €149,702. Today, 7 December, 2013, that investment is worth $204,668 (Currency, 2013). That’s an increase of .8% in just two weeks. In order to determine the long term volatility of the Euro, historic exchange rates between the two currencies must also be evaluated. The daily currency values for $1 converted into Euro, and the value of $202,995 converted on that day, are presented below for the week of 1 December to 7 December, 2013, 2012, and 2011 (Historical, 2013).
Daily Currency Values from 1 to 7 December, 2013
1 Dec
2 Dec
3 Dec
4 Dec
5 Dec
6 Dec
7 Dec
.7357
.7357
.7368
.7373
.7362
.7345
.7314
€149,343
€149,343
€149,557
€149,668
€149,445
€149,100
€148,471
Daily Currency Values from 1 to 7 December, 2012
1 Dec
2 Dec
3 Dec
4 Dec
5 Dec
6 Dec
7 Dec
.7693
.7699
.7700
.7672
.7650
.7637
.7670
€156,164
€156,286
€156,306
€155,738
€155,291
€155,027
€155,697
Daily Currency Values from 1 to 7 December, 2011
1 Dec
2 Dec
3 Dec
4 Dec
5 Dec
6 Dec
7 Dec
.7484
.7428
.7430
.7463
.7463
.7446
.7471
€151,921
€150,785
€150,825
€151,495
€151,495
€151,150
€151,658
Recommendation
The historical currency values for $1 converted to Euro demonstrate the reason companies need to understand and evaluate exchange rate risk. While the value of U.S. Dollars converted to Euro has changed over the last two years, the change has been small. In 2012, the U.S. Dollar was stronger, but is now back close to the 2011...