Week 2 - Assignment BUS638

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Ashford University *

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638

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Economics

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Feb 20, 2024

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The Impact of Currency Fluctuation HAILEY JACKSON THE UNIVERSITY OF ARIZONA GLOBAL CAMPUS BUS 638: INTERNATIONAL BUSINESS INSTRUCTOR: MOUSTAFA AHMED JUNE 20, 2023
Introduction As a United States–based company that trades extensively with various countries in the eurozone, I have been hired as a consultant to evaluate the impact of currency fluctuations on sales in the eurozone in the last few months for this company. This presentation will display an exchange rate graph from USD and euros over the last three months, analyze the trends, discussion how these trends may impact the company’s sales in the eurozone, and present solutions that are concrete to overcome challenges and maximize opportunities.
Agenda Trends Impacts Solutions
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Exchange Rate USD to EURO The chart pictured shows the trend of the exchange rate from U.S. Dollars (USD) to European Euros for a twelve- month period beginning June 14, 2022, to June 13, 2023.
Exchange Rate USD to EURO The chart pictured shows the trend of the exchange rate from U.S. Dollars (USD) to European Euros for a three- month period beginning March 15, 2023, to June 13, 2023.
Trends Analyzed In the graph on slide 4, there is an increase trend in the rate of the euro to USD, then a steep decrease is displayed for about 6 months. Over the last three months, the graph continues with a decrease in the exchange rate from USD to euros, then at the end of May, there is an increase in the euros per USD. As the trends decrease, the exchange rate decreases as well. What is striking is the steep decrease around November 2022.
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Trends Impact on Firms’ Sales (Eurozone) “ A. If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases. 1. The change in relative prices will increase U.S. exports and decrease its imports. B. If the dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls” (University of Notre Dame, n.d).
Solutions to Overcome Challenges 1. Stay informed on the level and direction of the exchange rates. 2. Sourcing flexibility would be a backup plan to having an alternate source in the case that one location turns to be more expensive or not making enough. 3. “Diversifying financing: Having access to capital markets in several major nations gives a company the flexibility to raise capital in the market with the cheapest cost of funds” (Picardo, 2021).
Solutions to Maximize Opportunities 1. “Matching currency flows: This is a simple concept that requires foreign currency inflows and outflows to be matched. For example, if a U.S. company has significant inflows in euros and is looking to raise debt, it should consider borrowing in euros. 2. Currency risk-sharing agreements: This is a contractual arrangement in which the two parties involved in a sales or purchase contract agree to share the risk arising from exchange rate fluctuations. It involves a price adjustment clause, such that the base price of the transaction is adjusted if the rate fluctuates beyond a specified neutral band” (Picardo, 2021).
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Conclusion To reiterate, I have been employed as a consultant by a US-based company that conducts substantial business with many eurozone nations to assess the effect of currency fluctuations on sales in the eurozone during the past few months. This presentation has shown a graph of the USD/EUR exchange rate during the previous three months, analysis of the trends, discussed how these changes affect the company's sales in the eurozone, and provided practical methods to deal with challenges and take advantage of opportunities.
References Antweiler, W. (2019). Fx charts & plots (v2.16). University of British Columbia. http://fx.sauder.ubc.ca/plot.html Peng, M. W. (2023). Global business (5th ed.). Cengage Learning. Picardo, E. (2021, October 21). Exchange Rate Risk: Economic Exposure. Retrieved from https://www.investopedia.com/articles/forex/021114/exchange-rate-risk-economic-exposure.as p#toc-what-is-economic-exposure University of Notre Dame. (n.d). Chapter 15 Exchange Rates and Their Determination. Economics 504. Retrieved from https://www3.nd.edu/~cwilber/econ504/504book/outln15h.html#:~:text=If%20the%20dollar% 20depreciates%20(the,exports%20and%20decrease%20its%20imports .

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