Foreign Exchange Rates and the Impact of The Same on The Exports And Imports Assignment Help
Describe how a change in exchange change rate affected your firm. Explain what happened to your price and quantity? How can you profit from future shifts in the exchange rate? How do you predict future change in the exchange rate?
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The current organization is a refinery company and do purchases the crude oil from the foreign countries as well will sell the refinery products to the foreign nations. Hence the financial transactions of the company do depend obviously on the international market considerably. As per the scenario at present, the refinery is working on to make lot of products from the crude oil viz., jet fuel, gasoline. In the current scenario as the company operations are more dependent on the foreign countries any exchange rate changes can have drastic implications on the financial status of the organization.
For example since the company at present is importing crude oil from other countries, if there is any hike in the foreign exchange rate(depreciation) will create impact on the economy of the organization. If the dollar has become weaker or if the foreign exchange rate got depreciated, the imports will become more costlier and inflation will be increased. When there is depreciation, the purchasing power of the dollar will become less and it can purchase only less imports, this in turn will impact in the form of reduction of profits.
At the same time if there is appreciation of the dollar against the importing country currency or alternatively if the dollar has become strong, it can have positive outcomes. Now dollar can able to purchase more imports at the same price and effective profit margins of the company will increase.
If the dollar value is appreciated or alternatively if the value of the currency of the country is strengthened, the exports of the country will become expensive and the importer will look for other countries which can offer the goods at lower price or at lower net value. So the dollar appreciation will result in fall in exports for the company and at the same time if the dollar is weakned, it will propel more exports. This will be due to the fact that importer need to pay less for the same volume when the dollar value is reduced.
However still the relative valuation of the currency will ultimately decide the gross export and import volumes as well will decide the final profit margins of the company. Foreign exchange rates will finally decide the profitability of the company products and importability of the goods from the other nations. Finally the profitability of the company depends on the foreign exchange rates and these dynamic rates will decide the profit margins (Asteroiu et al., 2016).
(a) An appreciation in the dollar value has increased the imports to the company and made it profitable for the exporters to supply more crude oil to the company. Same time, the importers refrained from taking more quantity of the final products as a strengthened dollar made it more expensive for them to import from products from us.
(b) The price and quantity got impacted with the exchange rates. When the dollar is appreciated, the price of imports is reduced to balance the value to the company. Same time the price of the exports is increased.
(c) The future shifts in the foreign exchange rates will be managed accordingly, either by increasing the prices or by decreasing the prices of the exports and imports so as to balance the actual shift in the net value.
(d) Econometric models can be employed to predict the foreign exchange rates. Techniques like PPP(Purchase power parity), relative economic strength can be employed to predict the exchange rates of the currencies.
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