Effect of Exchange Rates on International Marketing
Definitions
Foreign Exchange Markets
Foreign exchange market is a ‘market that trades the currencies of different countries. The foreign exchange market is in actual fact a series of different markets, each exchanging the currency of one nation for that of another nation. A foreign exchange market sets the price of one currency in terms of the other; a price termed the foreign exchange rate, or simply exchange rate’ (www.amosweb.com/cgi-bin). Factors that influence foreign exchange rates are the balance of trade, inflation rate and the prevailing real exchange rates.
Where a country experiences a trade deficit, which is more imports than exports; its currency will lose value as it means it sells more of its currency to get other countries’ currencies. Where there is a surplus it means other countries demand more of its currency hence there will be a gain in the value of that currency.
A country with a higher inflation rate will see its currency losing value. This is because with time that currency will buy less and less of the domestic goods. This loss in purchasing power will be reflected in the loss in value on the forex market. The opposite is also true.
If a country’s real interest rate (inflation and risk adjusted) is higher than in other countries, the result is that its currency will appreciate. This is because money market investors will move their money to that country in search of superior retuns on investment. This therefore increases the demand for that country’s currency on the forex market resulting in a gain in value. The opposite is also true for countries with low real interest rates.
International Marketing
American Marketing Association defines international marketing as the multinational process of planning and executing the conception, pricing, promotion and distribution of ideal goods and services to create exchanges that satisfy the individual and organisational objectives. International trade is made up of imports, exports,
Foreign Exchange Markets
Foreign exchange market is a ‘market that trades the currencies of different countries. The foreign exchange market is in actual fact a series of different markets, each exchanging the currency of one nation for that of another nation. A foreign exchange market sets the price of one currency in terms of the other; a price termed the foreign exchange rate, or simply exchange rate’ (www.amosweb.com/cgi-bin). Factors that influence foreign exchange rates are the balance of trade, inflation rate and the prevailing real exchange rates.
Where a country experiences a trade deficit, which is more imports than exports; its currency will lose value as it means it sells more of its currency to get other countries’ currencies. Where there is a surplus it means other countries demand more of its currency hence there will be a gain in the value of that currency.
A country with a higher inflation rate will see its currency losing value. This is because with time that currency will buy less and less of the domestic goods. This loss in purchasing power will be reflected in the loss in value on the forex market. The opposite is also true.
If a country’s real interest rate (inflation and risk adjusted) is higher than in other countries, the result is that its currency will appreciate. This is because money market investors will move their money to that country in search of superior retuns on investment. This therefore increases the demand for that country’s currency on the forex market resulting in a gain in value. The opposite is also true for countries with low real interest rates.
International Marketing
American Marketing Association defines international marketing as the multinational process of planning and executing the conception, pricing, promotion and distribution of ideal goods and services to create exchanges that satisfy the individual and organisational objectives. International trade is made up of imports, exports,