demonstrating strong written communication skills B u s i n e s s F i n a n c e
Write a 250–500 word analysis in which you examine the issue of currency exchange and the risks associated with changes in the exchange rate.
- Fluctuations in currency exchange rates can have significant effects on business costs, asset values, and profitability. Therefore, it is important for managers to be familiar with exchange rates and currency considerations and to understand the risks involved in currency exchange.
Given the very wide range of complex topics associated with globalization, the issue of monetary systems might seem small. However, as is readily apparent, it can have a dramatic impact on a company’s operational and financial success, and thus is actually a vital topic.
- Consider a U.S. business manager involved with a supplier in Argentina. At present, the inflation rate in the United States is relatively low, while the inflation rate (at least the unofficial and more widely accepted rate) is fairly high. If the U.S. business manager negotiates a contract to purchase products from Argentina in pesos (at prevailing prices in Argentina), the U.S. business will likely be impacted by inflation, since the price paid for the products would increase faster than in the United States. By contrast, if the U.S. business manager negotiates contracts to be paid in U.S. dollars (at prevailing prices in the United States), the U.S. business might be more insulated from Argentina’s inflation. However, the supplier in Argentina might perceive that as unfair, since they could potentially sell their product within Argentina at prices increasing more rapidly.
- As a more extreme example, also using Argentina to illustrate the point, Argentina for many years had their peso tied 1:1 to the U.S. dollar. That turned out to be unsustainable (contributing to a financial crisis in Argentina in 2001), and Argentina had to abruptly remove that tie and let the peso float on the international market. That abrupt change caused massive issues for businesses located within Argentina, as well as for foreign companies doing business in Argentina. As an example, depending on how various contracts were set up, some businesses faced an overnight quadrupling of prices.
The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.
The following e-books or articles from the University Library are linked directly in this course:
- Adekola, A., & Sergi, B. S. (2007). Global business management: A cross-cultural perspective. Abingdon, Oxon, GBR: Ashgate Publishing Group.
Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
- Michigan State University. (2020). globalEDGE: Global resource directory. https://globaledge.msu.edu/global-resources
- Hill, C. W. L., & Hult, G. T. M. (2020). Global business today (11th ed.). New York, NY: McGraw-Hill.
Complete the following:
- Examine the concept of the exchange rate between the Japanese yen and the U.S. dollar. Choose a Japanese company, such as Toyota, Canon, or Mitsubishi, and identify a strategy that the company might consider to reduce its currency exchange risk associated with Japanese and U.S. currencies.
- Write an analysis in which you include the following:
- Identify the exchange rate of the Japanese yen and the U.S. dollar.
- Discuss the resulting value of selling goods in the United States exported from Japan.
- Explain how weekly changes in the exchange rate would affect profitability for exports from Japan to the United States.
- Identify risks related to changes in the exchange rate from a management perspective.
- Support your analysis with references from the University Library, globalEDGE, or other Internet sources.
Use the following guidelines when writing your analysis:
- Length: 250–500 words.
- Writing: Your analysis should be free of grammar and spelling errors, demonstrating strong written communication skills.
- Format and References: Use proper APA-formatted references and in-text citations when identifying your sources.
Currency Exchange Risks Scoring Guide
CRITERIA DISTINGUISHED Analyze the exchange-rate-based value of selling goods in the United States exported from another country. Analyzes the exchange-rate-based value of selling goods in the United States exported from another country. Determines the value of the U.S. dollar against the currency of another country to illustrate the value using the U.S. selling price of imported goods. Explain how changes in the exchange rate would affect profitability for exports from another country to the United States. Explains how changes in the exchange rate would affect profitability for exports from another country to the United States, citing specific examples. Identify risks related to changes in the exchange rate from a management perspective. Identifies risks related to changes in the exchange rate from a management perspective, citing specific examples of financial consequences.
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