How Can Foreign Exchange
Rates Affect My Business?
Foreign exchange is a huge global business, and as such, it affects virtually every other industry. However, to understand how it may affect your company, you need first to know what the term means. Simply put, foreign exchange refers to trading one country’s currency for another.
Companies can use foreign exchange in different ways – from hedging against unforeseen economic changes to facilitating international transactions that would otherwise have been impossible due to factors beyond their control.
A currency is worth something and can be traded for other capital, such as the Canadian dollar or U.S. Dollar. The currency exchange rate tells you what one country’s money is worth in terms of another country’s capital. For example, If you’re trading on the currency exchange in Vancouver, you could expect to receive USD$10 for your CDN$12.56.
Currencies are traded on markets just like stocks, commodities, and bonds to allow currency exchange. The currency market is the biggest financial exchange in the world, with trading occurring around the clock. Currency rates are quoted as currency pairs such as:
All major economies produce goods that appear on the world market and demand trading currencies to buy or sell these goods. In particular, commodity prices such as oil often depend on these currencies. So as you can see, there are a lot – but that’s why Forex exists! Forex exchanges allow people around the world to trade one type of currency for another at any time.
Various factors determine exchange rates, including interest rates and inflation rates, economic performance and currency policies, and currency speculation in the foreign exchange markets. As a result, exchange rates can be a blessing or a curse. Of course, they aren’t always great, but when they are, it allows you to take advantage of the power of your business and grow faster.
Foreign exchange rates can impact your business because they affect how much you pay for goods and services from other countries. For example, do you have employees, suppliers, or customers all over the world?
If so, watch out! The value of your currency can change at any given minute. If the value of your home currency falls against the U.S. dollar, then it will cost more to buy American-made products like cars or electronics.
If the value of American dollars rises, then tourists from other countries can buy their goods at lower prices because they can afford them better with devalued currencies such as the Canadian dollar and British Pound Sterling. This is why Canadians should be happy about high oil prices – it means cheaper flights for Americans who come looking for bargains!
Although it is impossible to know the perfect time to make international transactions, always try not to be too far ahead or behind market trends while also being aware that these values are constantly in flux.