Many times students are expected to evalute the affect of exchange rate fluctuations on the businesses in the country. dineshbakshi.com has recently added revision notes on this topic. A brief summary is given below...
How fluctuation in exchange rate affects business.
Let’s take the example of Britain and US. If the value of Pound Sterling fluctuates in comparison to US$, then, how will it affect different businesses in United States?
Appreciation of Currency
US Dollar becomes expensive as compared to British Pound.
In order words, there is an Appreciation in the value of US$
Earlier 1 Pound could get $1.5,
Now 1 Pound can only get $1.3 (because US$ has appreciated)
It will directly affect US Importer and Exporters. Lets see how…
US Importers will GAIN because now US$ dollar can buy more from Britain. Earlier $1.5 could get only 1 Pound worth of goods from UK but now US importer have to pay only $1.3 to get 1 Pound worth of goods from UK.
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