Exchange Rates

Paper Summary:

This paper compares exchange rates between Australia, Great Britain, and Japan from February 28th, 2003 and August 28th, 2002. Analysis of where a company could focus its export business based on past, current and 180 days forward exchange rate trends and other factors is then examined. Finally, a memorandum to convince management that establishing an export business to one of the countries is a good idea is included. The paper includes graphs.

From the Paper:

"A basic precept of economic theory is that currency depreciation encourages exports and improves a nation's trade balance. (Blaine, 1996) However, currencies began to float freely, more or less, in 1973 thus causing the link between exchange rates and trade flow to become very tenuous. (Blaine, 1996). The rapid increase in international capital flows is one reason attributed to this tenuous condition; capital flows are much more sensitive to minor changes in exchange rates compared to trade flows, especially in the short run. Therefore countries that attempt to boost exports by making their currencies weaker can experience negative results such as large inflows of foreign direct investment, large outflows of foreign portfolio investment and domestic flight of capital. (Blaine, 1996) The growing importance of multinational corporations in determining international trade patterns is another factor. Global production and distribution networks act to replace exports from the home countries of the multinationals thus replacing exports with local production in foreign markets."

More papers on Exchange Rates:

• Term Paper # 143464 : "Exchange Rates and Japanese Foreign Investment"
• Essay # 34233 : " Exchange Rates and Western Economies in the Post War Era"
• Case Study # 118533 : "Interest Rates and Exchange Rates"

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