question archive Describe how a change in the exchange rate affectedyour firm
Describe how a change in the exchange rate affectedyour firm
Subject:EconomicsPrice:2.84 Bought7
Describe how a change in the exchange rate affectedyour firm. Explain what happened to your price and quantity. How can you profit from futureshifts in the exchange rate? How do you predict future changes in the exchange rate?
If you are in an industry that does not deal with any foreign exchange transactions, use the petroleum industry for this assignment. Imagine that you work for a domestic oil refinery. You do not work for an oil producer, but rather for a refinery, which turns crude oil into many different petroleum products, from jet fuel to gasoline, which are then sold to world markets. You have the option of purchasing crude oil from U.S. sources or from various foreign countries. You must purchase crude oil in order to make products that you can sell in the United States or in other countries
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If the exchange rate falls (the value of the domestic currency has declined) then domestic firms are now affordable for foreigners, and this will increase the demand for service. This is because, in terms of forex, the price of the service will now fall.
Step-by-step explanation
If the exchange rate falls (the value of the domestic currency has declined) then domestic firms are now affordable for foreigners, and this will increase the demand for service. This is because, in terms of forex, the price of the service will now fall.
But, if the exchange rate goes up (the price of the domestic currency is appreciated) then the domestic firms will no longer be as cheap as before as the price of the service will now have gone up. This will reduce its demand.
The way to benefit from future shifts in the exchange rate will be by separating the 'additional' services or compliments, services provided to consumers. When the exchange rate increases, the domestic firm can reduce those services to cope with the reduction in demand for its services.
The way to predict the future exchange rate will be by looking at trends in the economy. The important factors affecting the exchange rate are inflation rate, interest rate, political stability, etc.
