Homework Paper 4

Paper #3

Student name: Melek Simge Belge

ID: 22576

Course: BUS705DE International Financial Management

Instructor: Douglas Hill

FORCASTING EXCHANGE RATES & EXPORTING HOME MADE CANDLES

An exchange rate is the rate at which one currency is exchanged for another. Currency exchange rates strongly impact trade and money flow patterns. Using economic theory, mathematical and statistical methodologies, and econometric research, predictive forecasting develops expectations. These decisions will also impact the economy's direction (Exchange Rate - Overview, How It Works, Importance, n.d.). Identifying and forecasting exchange rate swings is crucial for enterprises, investors, and regulators. Exporting is the quickest approach to join a new market. Our business exports a variety of products to foreign markets for purposes of expansions and gaining new customer base. Many firms choose to export at least part of their products to international markets. A corporation may benefit from economies of scale by exporting since many nations don't have enough demand to support local manufacturing. Exports are the most common way to enter a new market. Exporting keeps manufacturing processes local, which may lead to scale economies. Consolidated manufacturing operations outperform scattered production in terms of cost and quality in several industries. A drawback to this strategy is that managers at factories located distant from export clients may not be as responsive to their customers' requests. Candle consumption and imports are gradually rising throughout Europe, making it an attractive market for the product. Candles have become more of a fashion statement than a necessity. Exporters from emerging nations, particularly those in the upper-mid market category, have a lot to gain from this. Decorative and gift item retailers are good options for this market. Candles are one of Poland's most popular exports. Focus on design, branding, material usage, and handcrafted candles in order to compete with its comparatively low manufacturing costs.

Currency exchange rates are important in international trade. This is true for risk assessment and for investors seeking greater information. The exchange rate is the price at which one currency may be exchanged for another. Exchange rates may be difficult to forecast due to their greater volatility than the macroeconomic factors used in their calculation, as well as model misspecification. This study employed three structural models: monetary, Mundell-Fleming, and Dornbusch. Most worldwide forecasts are made in a few days. Exchange rate forecasts are used to analyze foreign currency denominated cash flows in international transactions. So it's vital to weigh the benefits and risks of conducting business abroad (Kramer, 2020).

Between 2011 and 2015, European candle imports increased significantly. 18% of these imports come from underdeveloped nations. Germany, the UK, and the Netherlands are all big candle importers in Europe. The UK is a growing country and so a great market for our goods. Europe's candle demand is surpassing supply. Demand for imported products makes Europe a desirable market. Decreased usage of candles in Europe between 2010 and 2014. Consumption increased by 5% annually to 2 billion. 430 million euros worth of German candles. The Netherlands come in second with €206 million (Exporting candles to Europe | CBI, n.d.).

The role of FDI in developing countries cannot be emphasized. Foreign investors are drawn to a country's manufacturing industry if the potential for long-term gains is obvious. It is a source of capital creation in developing countries as well as technology and creative talent transfer from developed to developing countries through foreign direct investment. (Clark, 1981).If exports have grown while imports have fallen, this may indicate that foreign economies are performing better. Conversely, if exports fall but imports rise, the domestic economy may be performing better than the global markets. Candles were formerly a useful item, providing both light and heat in the house. However, their popularity has waned in recent years. As a result, the candle is now more than just a decorative item in the house. As a result, there are primary advantages of using it. Candles may be used to create a romantic environment by their color, aroma, and form. They may also have a soothing, relaxing, or stimulating impact on the consumer. These advantages are often used by the spiritual sector, which includes religious, yoga, and massage applications. Candles can provide a particular touch to any event, such as a wedding or a party. seasonal events such as Christmas and new seasons, such as candles in bright green tones and a corresponding aroma for spring the tea-drinking routine, which commonly includes tea light holders (in attractive holders).

Candles are now used in every room of the home, including the bathroom and the yard, to create a welcoming ambiance. Focus on one or more of these market categories since candles have a wide range of applications. In addition to broad trends in home design, look into particular product categories and seasonal celebrations like Christmas in order to stay up to date. Trends for these goods also suggest a rise in the popularity of scented candles. There is a lot more information regarding this topic in our research of Christmas merchandise. This set of products has also grown more emotional and gift-related for use in health, such as home scent and soaps. In this scenario, they are competing with candles. Therefore, one should be aware of any changes in these rival items.

It's tough to grasp how trade influences a country's exchange rate since worldwide business and currency exchange rates are intertwined. The exchange rate affects the country's trade surplus or deficit. Exporters profit from devaluation while importers are obliged to pay more. A weaker home currency boosts exports and imports, whereas a strong home currency hurts both. Higher input costs, such raw materials and labor, may impact exports.

References

Clark, P. B. (1981). Trade and payments adjustment under flexible exchange rates. Journal of International Economics, 11(1), 130–134. https://doi.org/10.1016/0022-1996(81)90052-0

Exchange Rate - Oveview, How It Works, Importance. (n.d.). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/economics/exchange-rate/

Exporting candles to Europe | CBI. (n.d.). Www.cbi.eu. Retrieved November 5, 2021, from https://www.cbi.eu/market-information/home-decoration-textiles/candles

Kramer, L. (2020, March 20). How Importing and Exporting Impacts the Economy. Investopedia. https://www.investopedia.com/articles/investing/100813/interesting-facts-about-imports-and-exports.asp