What are demand-related factors and supply-related factors, that may influence exchange rate movements? Include any possible government-related factors.
Scenario:
Madison Company is a large manufacturer and distributor of cake supplies. It is based in Chicago
(Headquarters) and Trinidad. It sends supplies to firms throughout the United States and the United
Kingdom. It markets its supplies through periodic mass mailings of catalogs to those firms. Its
clients can make orders over the phone and Madison ships the
The main competition for Madison’s in the United States comes from one U.S. firm and one
Canadian firm. A British firm has a small share of the U.S. market but is at a disadvantage
because of its distance. The British firm’s marketing and transportation costs in the U.S. market
are relatively high. Given that one-third of the company sales are exported to the United Kingdom and invoices for
exports are in US dollars, the demand for its exports is highly sensitive to the value of the British
pound. In order to maintain its inventory at a proper level, it must
products which is somewhat dependent on the forecasted value of the pound.
Question:
What are demand-related factors and supply-related factors, that may influence exchange rate
movements? Include any possible government-related factors.
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