Homework paper 3

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The success of a nation's commerce is heavily influenced by its exchange rate. Currency volatility and value can have an impact on overall economic growth, the balance of payments, and global finance, regardless of whether it is caused by policy prescriptions or extraneous events. The Department of Energy's study on the revival of trade-restrictive policies and chronic currency devaluation has shed light on how currency values impact international commerce (Müllner, 2017). However, the actual impact of currency fluctuations on economic relations is a contentious issue, Müllner (2017) has detailed the empirical background on certain variables that might influence trade. However, analyzing the unpredictability of the currency value and the impact of consequent mismatch on global investment may be demonstrated by determining if distortion of the currency value affects trade policy changes on a regular basis. A weaker home currency encourages exporting by making imports comparable in price; on the other side, a strong national unit can stifle exports by rendering imports inexpensive (Engel et al., 2018).

The worldwide economic and commercial slump may have a range of consequences for global economies and business, including changes in international trade ties. This is because a decreasing exchange rate has the impact of making shipments from one country less expensive and, as a result, imports into the same country more costly. In a global economy, vertical industrial integration, on the other hand, indicates that outbound goods have a substantial proportion of components originating in other countries. A consequence of the ease with which such imported parts may be substituted with domestically made goods is that they may become too expensive for any exporter to utilize.

Following that, Lustig & Verdelhan, (2019), claims that currency value levels have an impact on the foreign capital inflows and debt payments. As a result, a deterioration of a nation's currency entails a rise in the notional value of the bond financial assets in relation to the nation's domestic currency resources. As a result, the debt based in domestic currency will have an effect on international lenders. As a result, the devaluation of currency will lower the cost of infrastructure investments made by international investors. This is a crucial factor, especially for large economies, because it will encourage capital spending. If, on the other hand, the devaluation of a nation's currency is caused by key stakeholders losing faith in the industry, international investors will be hesitant to invest (Lustig & Verdelhan, 2019),

Now let us bring the homemade candle store, on board with international finance and exchange rate. It is crucial to note that, just like the fluctuating exchange rates of the dollar, there will be fluctuation of candle prices, not obvious, but as a business, it's something that has to be anticipated at one time. When the prices change, the operations and operating income will change in the home candle store. Since we are aware of the inevitable fluctuating rates of the exchange rates, the homemade candle business can always keep in a tab, the demand, and supply of their products, so that in an instance of fluctuations, changes are made, and the business can continue.

The homemade candle business had a mission, and vision, just like many companies and businesses. No business wants to make losses, but rather maximize their profits always. As result, just like the exchange rates, the executives of the homemade candle business will have to think of operating exposures in the long term. Also, if the executives know the operating exposures can play a significant role in making a better judgment when it comes to looking for new markets and setting prices, as they keep their eyes on competition from other rival businesses. Also, it is crucial to bring one of the exchange rates concepts on board, since exchange rates impacts are outside the homemade candle business power, a very good reason why in the business segment leaders and management should take into consideration the exchange rate concepts in international finance.

In conclusion, the exchange rate plays a significant role in international finance and the business world. the exchange rates impact the business world, by helping in the planning of the operation costs, searching for new markets, and also can help in projecting risks in small businesses like that of the homemade candle store. The fluctuation of the exchange rates can help the business, to know if the prices have shifted, and if possible in the future, to export their products.

References

Engel, C., & Wu, S. P. Y. (2018). Liquidity and exchange rates: An empirical investigation (No. w25397). National Bureau of Economic Research.

Lustig, H., & Verdelhan, A. (2019). Does incomplete spanning in international financial markets help to explain exchange rates?. American Economic Review, 109(6), 2208-44.

Müllner, J. (2017). International project finance: Review and implications for international finance and international business. Management Review Quarterly, 67(2), 97-133.

Obstfeld, M., & Taylor, A. M. (2017). International monetary relations: Taking finance seriously. Journal of Economic Perspectives, 31(3), 3-28.