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Table of Content
Abstract----------------------------------------------------------------------------------------2 2.0 Exchange Rate Definition--------------------------------------------------------------3 3.0 Factors Influence the Exchange Rate Fluctuation--------------------------------3 4.0 The Exchange Rate impact on the Imports and Exports Enterprise---------4 3.1 The Appreciation of the Exchange Rate Impact on Companies------------5 3.2 The Depreciation of the Exchange Rate Impact on Companies------------5 5.0 Measures of Companies to handle with the Exchange Rate Movements------5 6.0 The Relationship between the Companies and the Exchange Rate Policy----7 7.0 Conclusion----------------------------------------------------------------------------------8 8.0 Reference-----------------------------------------------------------------------------------9 Abstract Subprime mortgage crisis broke out in the birthplace of the United States since 2008, which leading the global economy downturn in the following years. Although many developed and developing countries are trying to recover the global economy, looking through these years economy development implicate that conditions of recovery is not as expected as people’s willing. For the developed countries, output growth decreased from 2011 and the unemployment ratio still seriously while the developing countries economic growth increased slowly. (World Economic Situation and Prospects, 2012) Further, the European debt crises occurred in 2011, these two major challenges will delay the economic recovery process. Exchange rate, under the economy situation mentioned above, plays an important role in the global economy. This study analysis the exchange rate influences the imports and exports for the companies. Explanations the exchange rates to who wants acknowledge is the first step, and then illustrate the companies how react to the exchange rate changing and bring the results for the actions which companies handled, followed the functions of exchange rates policy in countries. 1.0 International Economic Outlook The global economic is multiple and interaction each other, the global productivity growth slowly during the year of 2011. In the European, the economy began weaken from 2011 where the debt crisis burst out. Looking at the following chart, illustrates the three types of economies’ exports volume: word, developed economies and emerging economies. Obviously, from 2006 to July of 2008, the exports volumes in these three economies were increasing steadily, however, approximately during the end of 2008 and beginning of 2009, all of these were dropped without forecasting due to financial crisis, following then recovery tardily. Source: CPB Netherlands Bureau for Economic Policy Analysis, rebased by UN/DESA. 2.0 Exchange Rate Definition Different countries locates different regions in the world have their own currency for their local people to trade, however, the native currency only can be used in the native place rather than the others, which will bring battles for the people who consumer in the world, and then the exchange rate concept arisen. Exchange rate is a rate of one country currency converts to other country currency to trade conveniently in different places. Exchange rate is one of the most crucial factors to adjustment in international trading. (S¨ohnk, Gregory, and Bernadett, 2010) Calculating the cost of every product produced by the country, in general, the currency will accordance with the native region, nevertheless, the exchange rate is possible relevant with the cost of product when its traded on the international market. Whether the exchange rate is higher or lower will impact on the international competition of products. 3.0 Factors Influence the Exchange Rate Fluctuation The exchange rate is influenced largely by the exogenous shocks rather than the endogenous variables. (Christian and John, 2011) There are several reasons which can result the exchange rate fluctuation and some contrary important factors are showing as following: - The international balance of payments. A country’s balance of payments will appear surplus state which will lead this currency exchange rate increasing whereas deficit shows the currency exchange rate decreasing. - If the inflation happened, the currency has two possibilities are devaluations and revaluations, but the inflation will be occurred by many uncertain elements. (Pierre, 2013) - Once the higher interest in one nation, the higher of the exchange rate. - Economy growth. One country’s exchange rate will higher than the country with lower economy growth, because its economy growth is a little faster. - Each country’s exchange rate policy will determine the exchange rate movements. - The investors’ psychological expectations work a vital effect on the exchange rate fluctuations, especially, for the short-term or extremely short-term exchange rate flux. The higher evaluate and confidence of investors, the higher appreciation of currency. 4.0 The Exchange Rate impact on the Imports and Exports Enterprise The graph below shows that three currencies of Euro, Japanese Yen and Swiss franc exchange rate change conditions comparison with the US dollars. At the start of Jan. 2008 to around July of 2008, these three currencies were equal with the US dollars, then apart from each other in the following years. Except the Euro currency was keeping a steadily level, the other two currencies of Japanese Yen and Swiss franc were increasing slightly. Source: UN/DESA, based on data from JPMorgan Chase 4.1 The Appreciation of the Exchange Rate Impact on Companies The exchange rate appreciation will bring advantages and disadvantages for the businesses of enterprises. When one country’s currency exchange rate appreciation, not only enhancing local residents’ purchasing power in the country, but also encouraging the natives consume in abroad, because the products price will more expensive than before. In addition, the exchange rate movements slightly will bring cost pressure largely for the company, so if the exchange rate appreciation, the cost of limited energies and raw materials are possible decreased and then reducing the company costs while improving the competition, particular for the enterprises who mainly dependent on the import and export raw materials. On the contrary, on the negative side of the exchange rate appreciation is that many foreign currencies will inflows and arbitrage, which will lead the native economic bubble and threaten the safe level of economy. 4.2 The Depreciation of the Exchange Rate Impact on Companies Moreover, the price of the imports products will be raised on some extent, in the view of import consumer goods, and capital outflows are prefer to happen because whatever the native investors or foreign investors are prefer to convert to foreign currency rather than willing to hold several types of financial assets in form of the local currency. As a result of accumulating foreign currencies, foreign exchange will be shortly and push the local exchange rate fallen. The domestic firms seem expand their market share and improve their markups when the depreciation happened. (Nicolas, Philippe and Thierry, 2012) For instance, the currency of China is renmingbi, which appreciation 3.9% and 2.9% compare with the US dollars in 2012 and 2013 repectively (World Economic Situation and Prospects, 2012), then the domestic commodity prices were more expensive for the buyers. These are the reasons why the exchange rate will impact on trading of import and output companies. 5.0 Measures of Companies to handle with the Exchange Rate Movements The company operating main target is maximizing the corporate value, so for the multinational and firms’ business mainly on imports and exports, they have to meet challenges and take some relevant strategies to deal with the exchange rate fluctuation in order to assure the companies attacked by the exchange rate movements at the minimum level. When firms formulate the exchange rate management policy, firms should estimate the exchange rate risky at difference views and consider firms their own characteristics then take some actions to management. Firstly, this kind of enterprises can change the trade settlement methods, using the fixed exchange rate and hedging instruments according with the exchange rate varies. Acknowledge the exchange rate basic movements’ regulations and principals, and strengthen the powers to avoid risk-averse such as buying long-term exchange rate products to fixed exchange rate, or complying with under the terms of contracts which special for the exchange rate provisions, or using the fixed rate to determine the costs. Secondly, companies should improve senses of exchange rate risk management and reinforce the cooperation and communications with modern financial instruments to release the dangerous of the exchange rate happened. In other words, applying the exchange rate derivatives to draw up hedging programs effectively, based on the varies settlement methods, forward foreign exchange transactions, foreign exchange options trading and other financial tools can be used to protect the companies in the exchange rate markets. Thirdly, implementation of overseas investment strategy and enhance the response to the level of risk. Companies can analysis the products on kind of producing technologies, markets and costs carefully, then utilizing outstanding features to expend overseas investment directly. Afterwards, companies can invest some superior products in the native and participate in international trading positively, which combined with domestic and foreign resources gain a competitive edge to reduce the negative functions from the exchange rate movements.#p#分页标题#e# The last but not the least, companies ought to enhance profitability and capacity to respond through the way of updating industry and expanding domestic demand. On one hand, in the light of the company its own features to carry out technological innovation and update, adjustment the structures of products continuously, using these methods to deal with the exchange rate fluctuation through promote the market competition and price negotiate. On the other hand, establish a good brand and expand sales channels to reduce outputs while increase the domestic supply, by seeking the new profits to make the exchange rate movements more Initiative and flexibility. 6.0 The Relationship between the Multinationals and the Exchange Rate Policy The goal of the exchange rate policy is that the government takes advantage of the exchange rate rise and fall in national to keep the balance of payments. The exchange rate policy is one of the macroeconomic policies in the national and has many rules to operate. In practice, one country’s exchange rate policy always limited by many factors and will adjustment under real conditions, so the companies need consider the exchange rate policies and analysis the real positions to make themselves performance better. Every country has its own exchange rate policy; the government will develop an appropriate exchange rate policy to help the local imports and exports companies comply and application, and then avoid the national exchange rate fluctuating dramatically, which can ensure the stability of the national financial system. Seperately, the exchange rate policy has power to keep the price stability. Once the commodity prices tend stability, do the companies are likely gain profit with sustainabl in the future. 7.0 Conclusion According to the current economy situation, international economy recovery should take a long term to reach the goal in spite of the developed and developing countries are trying their best for the world financial. The companies’ performances level that mainly working as productivity will be more sensitive with the exchange rate movements rather than the exports volum. (Nicolas, Philippe and Thierry, 2012) Additional, the fiscal policy should be paid attention by the listed companies and using some financial derivatives to avoid risks and damages. The exchange rate will be fluctuated from time to time in the future; acknowledge and applying with the principles of montary policy will bring some benefits to companies. References Chad P. B. and Meredith A. C. (2013) “Import protection, business cycles, and exchange rates: Evidence from the Great Recession”, Journal of International Economics, Vol.90, p.50-64 Christian B. and John R. (2011) “Identifying the Relationship between Trade and Exchange Rate Volatility”, National Bureau of Economic Research, Vol.20, p.79-110 Jian W. (2010) “Home bias, exchange rate disconnect, and optimal exchange rate policy”, Journal of International Money and Finance, Vol.29, p.55-78 Michael B. D. and James Y. (2010) “Price adjustment and exchange rate pass-through”, Journal of International Money and Finance, Vol.29, p.181-200 Nathan S. B., Jun M. and Mark E.W.(2013). “The Contribution of Economic Fundamentals to Movements in Exchange Rates”, Journal of International Economics, Vol.90, p.1-16 Nicolas B., Philippe M. and Thierry M. (2012). “How do Different Exporters React to Exchange Rate Change?”, The quarterly journal of economics, Vol.127, p.437–492 Pascal T. and Sebastian W. (2013) “Limits of floating exchange rates: The role of foreign currency debt and import structure”, Journal of Development Economics, Vol.101, p.179-194 Philippe A., Philippe B., Romain R. and Kenneth R. (2009). “Exchange rate volatility and productivity growth: The role of financial development”, Journal of Monetary Economics, Vol.56, p.494-513 Pierre L. S. (2013) “Sources of disagreement in inflation forecasts: An international Empirical investigation”, Journal of International Economics, Vol.90, p.218-231 S¨ohnke M.B., GregoryW.B. and BernadetteA.M. (2010). “Resolving the exposure puzzle:The many facets of exchange rate exposure”, Journal of Financial Economics, Vol.95, p.148-173 United Nations. “World Economic Situation and Prospects 2012” (2011). New York. |
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