BUSI 1701 Lecture Notes - Lecture 4: Foreign Exchange Risk, Foreign Exchange Market, The Foreign Exchange

• School: Carleton University
• Department: Business
• Course: BUSI 1701
• Professor: William Clements

Document Summary

What happens in the foreign exchange market can have a fundamental impact on the sales, profits, and strategy of an enterprise. Thus, it is (cid:448)er(cid:455) i(cid:373)porta(cid:374)t for (cid:373)a(cid:374)agers to understand how changes in currency exchange rates might affect their enterprise. International businesses use foreign exchange markets when: the(cid:455) (cid:373)ust pa(cid:455) a foreig(cid:374) (cid:272)o(cid:373)pa(cid:374)(cid:455) for its produ(cid:272)ts or ser(cid:448)i(cid:272)es i(cid:374) its (cid:272)ou(cid:374)tr(cid:455)"s (cid:272)urre(cid:374)(cid:272)(cid:455, the(cid:455) ha(cid:448)e spare (cid:272)ash that the(cid:455) (cid:449)ish to i(cid:374)(cid:448)est for short ter(cid:373)s i(cid:374) (cid:373)o(cid:374)e(cid:455) (cid:373)arkets. Currency speculation typically involves the short-term movement of funds from one currency to another in the hope of profiting from shifts in exchange rates. The foreign exchange market has two main functions: 1. to convert the currency of one country into the currency of another. 2. to provide some insurance against foreign exchange risk. International businesses have four main uses of foreign exchange markets: 1. the income a company receives for exports, investments, and licensing agreements abroad; 2. payments for products or services coming from abroad;