Functional Currency Determination Case 10/10/2011 ABSTRACT In the dynamic global market‚ companies of all sizes‚ whether small‚ medium or transnationals interact with foreign companies and in most cases operate with currencies that are different from those that they commonly use. Foreign companies use foreign currencies for their expenditures‚ hedging strategies‚ and investing and financing activities. As a result these business activities must be reflected on the financial statements in the
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to fluctuate according to the foreign exchange market. Free floating exchange rate is determined by the interaction of currency supplies and demands with no government intervention. It always termed “self- correcting’ as if any differences in supply and demand‚ the exchange rate will automatically be corrected in the market. For instance‚ if demand for one country’s currency is low‚ its value will decrease and vice versa. Thus the imported goods will become more expensive and stimulating demand
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If you have ever traveled to a country that does not use U.S currency‚ then you had to exchange your U.S. dollars into the country’s currency that you have just traveled to. You may notice that your U.S dollars have gotten you more or less of the other currency. This means you have just been affected by the exchange rate. If you have 1‚000 U.S dollars it does not mean you will have an equal amount in another country’s currency. Exchange rates effects our economy greatly‚ because we have
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between an optimum currency area and a fixed exchange rate system. Optimum currency area is when a group of nation currencies are linked to through permanently fixed exchange rates and the conditions that would make such an area optimum. Fixed is when value of a country ’s currency‚ in relation to the value of other currencies‚ is maintained at a fixed conversion rate. What are the main advantages and disadvantages of an optimum currency area? The main advantage of optimum currency area is that more
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References: Brazil Central Bank "fuelled" currency fall. 31 July‚ 2002. BBC NEWS.Available at: http://news.bbc.co.uk/1/hi/business/2164276.stm Brazil Historical Setting Hill: International Business Competing in the Global Marketplace‚ Fourth Edition‚ " The International Monetary System"‚ 2002‚ The
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determination is Two-way process and following are factors that Influence Exchange Rates Floating rates are determined by the market forces of supply and demand. How much demand there is in relation to supply of a currency will determine that currency ’s value in relation to another currency. For example‚ if the demand for U.S. dollars by Europeans increases‚ the supply-demand relationship will cause an increase in price of the U.S. dollar in relation to the euro. There are countless geopolitical and
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manages its currency in relation to other currencies and the foreign exchange market .Thus‚ it is basically the foreign exchange policy of a country or a trading block (such as European Union). There are currently three basic types of exchange rate regimes – Floating Exchange Rate (the market dictates movements in the exchange rate) Pegged Float (where a central bank keeps the rate from deviating too far from a target band or value) Fixed Exchange Rate (ties the currency to another currency (US dollar
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uses call options to hedge its yen payables‚ should it use the call option with the exercise price of $0.00756 or the call option with the exercise price of $0.00792? Describe the tradeoff. The corporation needs to purchase supplies with foreign currency. To hedge against the possible appreciation of the foreign currency’s value‚ the corporation can purchase a call option. Both options have to pay a premium for the option. The purchase price or exercise price of option A is $0.00756 plus a premium
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IT/210 Final Project - Currency Conversion Application-Level Requirements List 1. Application has interface with title and direction to accept data form user and convert foreign currency to US currency 2. First page should include the title of the application as well as any instructions the user might need to complete the conversion process 3. User data should be requested in clear and concise means. “Please Enter Amount of Foreign Currency (Whole amounts only please” 4
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Exchange Risk Currency risk is also called the foreign exchange risk or foreign exchange exposure‚ refers to a period of international economic transactions in foreign currency-denominated assets (or creditor) and liabilities (or debt)‚ caused by fluctuations in the exchange rate and its value will go up and possibilities. Risk of stake-holder including government‚ enterprises‚ banks‚ individuals and other sectors‚ they are facing the risk of exchange rate fluctuations. Classification 1. Transaction
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