NAME: to purchase for buying products. Some

NAME: NIZAM
UD DEEN

GROUP B

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INTERNATIONAL
FINANCIAL MANAGEMET

 

 

QUESTION:

Exchange rate
can tell you How much your currency is worth as compared to other countries
currency .since there is no perfect market and exchange rate can really affect
your imports and exports that happens in demotivating the imports and exports. As
the three theories of international financial management tells us that why the
country go outside of their countries to do business. One of the way to go
international is imports and exports. Those imports and exports is affected in
very large way by exchange rates. Think of the currency you want to purchase
for buying products. Some of the country currency is weak as compared to other
country currency. There are many reason that affect the currency. Every country
to perceive their economical goal. The thing that country produce in surplus or
the things in which the country is specialized in can export in other country
where these things are not surplus for example Saudi is reying on Pakistan human
capital while Pakistan relies on Saudi oil. This is concept of comparative advantage.
The countries that plays  currency games
in  order to spur their economic conditions
will really want their exports more than their  competitors . EVERY country will want to over
come their trade deficit .Same as what European countries did as they come up
with the idea of European union inorder to trade easily with each other that
affected many countries .

Whenever two
countries trade together they always have to exchange currencies to trade . But   inorder to encourage trade among each other
the all europe countries came to the conclusion of making  union that does not have a risk of exchange
rate and all Europe could trade with each other easily. Since there is no
exchange rate in European countries, they will focus on trading with each other
to reduce cost which could happen because of exchange rate. This will help
union countries to eliminate exchanging currencies cost.

 

When ever
the currency in foreign countries (from where you import) depreciated that
increases demand for product of exporting country because importing country
will have to pay less for importing a product. The currency depreciation help you
to increase a demand for your product in other countries and you can export
more of your products as compared to other countries.

A country
can gain a huge market share by depreciating their currency because your goods
can get cheaper with respect to other countries that have high appreciated
currency. The result you can get is increase in sale will boost economic growth
and it will increase the corporate profit that do businesses in foreign market
. When you are dealing in business world you will find many competitors and
every one would want their country to have same distinctive advantage on one
another . The same as happened to south korea and Japan . When south korea was
exporting their products and services the japan was their competitor .Now you
can understand the nature everyone would want to purchase things cheaply and
capitalize on it. When two lcountries which exports same things will want to
gain more market shares as compared to their countries since japan has more
similiarity with south Korea in order to exports things . japan automobile and
southkorea automobile has the biggest same maeket us . As japan were wanting to
increase their market share they had to offer their products cheaper than the
south Korean for gaining more market share.

When the
south korea exprts growth stalled the firms came to analyse the reason why
these exports have been stalled . the firms suggested that the reason was japan
curreny weakening. As we know the concept when you depreciate your currency
people would want more of your products because its available cheaper than of
of ther country product which are dealing in same business. This is why china
being a large exporter of the world want their currency cheaper as compared to
their exporting coutnries. When the currency was depreaciated by japan people
in the country who imports japan and south korea products have shifted to more
japan products because of its availability  more 
cheaper than southkorea.

In two word answer
you can say one of the main competitor of south korea as japan and they deal in
almost same kind of products when the Japanese yen got weaker many of the
people who were using south Korean products have shifted to japan products and
that was the reason that Japanese firms  suggested
that one of the reason of  declining the
exports south korea was weaking the currency of japan .

But we have
to always remember weakning of currency in order to gain market is not always
the solution and it can can affect you in long term. As you see the example of European
countries the currency depreciation and appreciation does not affect them because
they all trade in same currency which is euro. Some time exports and imports
have done in just one currency.a nd the other reason is it requires time
because when the countries have come together will complete their trade
agreement which often take 18 months.

 As the currency appreciation is relative the
currency may be become weaker as compared to other countries but it wont be
weaker to other countries as well. But still many countries sees it as a best
way to reduce the trade deficit and

 

 

 

 

 

 

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