Currency stability is an important factor in determining the profitability of a company in an economy. Fluctuating exchange rates are likely to affect a business in many ways since the costs of making purchases or sales across borders are severely affected. The exchange rates thus play a vital role to companies that import and export raw materials that are essential. Additionally, companies that sell their products across the international markets are also likely to be affected by exchange rates. Companies such as the United Parcel Service are also affected by fluctuations in exchange rates as they lead to increased underestimation or overestimation of budgets. The United Parcel Service Inc. delivers packages across the world and thus, it is affected by exchange rates.
Exchange rates affect the United Parcel Service due to the fact that, the company operates across the world delivering parcels to different regions. The devaluation of the US dollar led to lower costs of sending parcels to other countries. As a result, the company experienced lower profit margins which translated to lower revenues in the long run. Devaluation of the US dollar means that the US dollar is weaker against its foreign currencies such as the Euro and the Sterling Pound. During the periods where the currency was stronger against its trading counterparts, the company experienced an increase in revenue growth rates. UPS was able to sell its services to the international markets at higher prices when the currency was stronger against its counterparts.
Effect of Exchange Rate on Price and Quantity
Exchange rate is a likely factor to affect the price and quantity of goods provided to the customers in a given market. In many cases, the fluctuations in the exchange rates end up creating a difficulty in growth and development in companies due to underestimated profits. Exchange rates have a huge impact of the price and quantity of products and services within a country. Due to the devaluation of the currency, the price and quantity of products sold through the ups is significantly higher (Gaspar, 2016).
The price and quantity of products by the ups are significantly affected by the exchange rates that existed in the economy. Inflated exchange rates lead to devaluation of the currency. As a result, it is easier to import little products at a higher rate. The prices of the goods and services by the ups are significantly higher compared to previous expenditure schedules. Price and quantity are important factors that require constant monitoring to ensure that a company ends up in possession of very high. Appreciation or depreciation of a currency is an important factor for an economy. Economies depend on stability of their exchange rates in the various banks to ease in transactions.
How to Benefit on Future Shift in Exchange Rates
The exchange rates provide a good investment opportunity for many people in the society. Through the use of various currencies, the exchange rate provides different ways in which people can invest and earn money later. The exchange rates market behaves like the stock exchange market where there are cases where the product would sell highly and a time when the product sells at a loss. One can thus benefit from the shifts in foreign exchange market just like an investment at the early stages. Future shift in exchange rates can also be predictable depending to the economic situation that a country faces over the years of growth.
According to Gaspar (2016), for a person to benefit from the shifts in the exchange rates, it is important for the person to learn about the foreign exchange markets to determine how the currencies loose and gain values against the global currencies. Investing on the currency with large margins will ensure that when the person is exchanging the currency, the value becomes large and thus a person can see huge margins created from the currency trade. Studying the market trends and understands the shifts that occur will help in making more sound decisions with regards to investing on currencies in the market. Understanding the market helps people make the right investment decisions (Marthinsen, 2014).
How to Predict Future Changes in Exchange Rates
Exchange rates within a country are affected by numerous factors that affect the economy of a country. Some of the factors that affect the exchange rates include; interest rates, inflation rates, government debt, balance of payments, recession, and political stability among many others. These factors actively contribute towards the fluctuations of the exchange rates in any economy in the world. It is thus important to understand the factors in order to predict the future exchange rates a country will face within a given period. For a person to be able to speculate the future exchange rates, it is necessary for the person to understand the economic situation of the country.
All the factors that affect the exchange rates in a country contribute to economies. A person will be able to know whether the currency will appreciate or depreciate based on the economic stability in a country. For example, a country facing a recession is likely to experience devaluation of a currency. However, during recovery, the currency can grow stronger thus individuals can invest using such statistics (Marthinsen, 2014). On the other hand, the amount of exports that a country sends to international markets determines the balance of payment. It is easy for a person to predict the fluctuations of the currency through observing such factors that affect the exchange rates within countries in the world economies.
- Gaspar, J. E. (2016). Introduction to global business: Understanding the international environment and global business functions. Boston, MA : Cengage Learning.
- Marthinsen, J. E. (2014). Managing in a global economy: Demystifying international macroeconomics. Australia : South-Western.