International Business

Environment

 MODULE II


 BY:
 SHOUBHIK SEN(018)
 SUMIT THAKUR(019)
 AMITAVA PAL(012)
 ANKITA DWIEDI(O50)



FOREINGN EXCHANGE
MANAGEMENT
 FOREIGN EXCHANGE RATE

The quotation "actual rate" means the rate

at which exchange is sold in large amount
by a dealer ,the quotation "posted rate"
means the preliminary asking rate of the
day before an actual rate is made and this
is the rate usually exacted for a small
amount of exchange by a dealer. 
 PURCHASING POWER PARITY

Purchasing power parity is a theory of long-

term equilibrium exchange rates based on
relative price levels of two countries.
PPP exchange rate fluctuations are mostly due

to different rates of inflation between the two

economies. Aside from this volatility,
consistent deviations of the market and PPP
exchange rates are observed , for example
prices of non-traded goods and services
are usually lower where incomes are lower. 
Example:
 Exchange Rates

The price of one country's currency

expressed in another country's currency.
 An exchange rate is fixed when two
countries agree to maintain a fixed rate
through the use of monetary policy. 
Example:
 Foreign Exchange Market

The foreign exchange market ( forex , FX,

or currency market) is a worldwide
decentralized over-the-counter financial
market for the trading of currencies.
The primary purpose of the foreign

exchange market is to assist international

trade and investment, by allowing
businesses to convert one currency to
another currency.
Example:
 Values of Exchange Rates

Earlier : Till 1970’s All currencies were



fixed in relation to other currencies and in

relation to gold. Only central banks or
governments were able to change
the exchange rates between two currencies
by means of devaluation or revaluation.
Today the "gold standard" is history.
Currencies themselves have no intrinsic
value
 How is value of Exchange Rate


determined now.


NOW: In today's world, most currencies

'float'. The exchange rate between any two
currencies fluctuates from day to day and
throughout the day. The exchange rate at
any point in time is determined by market
forces. In countries where a fixed exchange
rate is in force, a black-market for western
currencies often emerges and flourishes
reflecting a rate somewhat closer to the
 FActors Affecting Exchange Rates

vPurchasing Power Parity

vForeign Exchange Market
vInflation
vSpeculations
 Hedging

Hedging is a financial strategy used to

reduce the risk of investing in financial
markets. Like insurance, hedging can avoid
some losses, but it also may reduce some
potential for returns on investment. An
investor who believes he can make a profit
on the increase in value of an investment
will reduce potential losses by betting on
the decline of a related investment.
 Currency Future

A currency future, also FX future or foreign



exchange future, is a futures contract to

exchange one currency for another at a
specified date in the future at a price
(exchange rate) that is fixed on the
purchase date.
 THANK YOU