1. What is foreign exchange and why U.S. companies need them? Discuss in detail
ID: 1126203 • Letter: 1
Question
1. What is foreign exchange and why U.S. companies need them? Discuss in detail and show your examples.e your e 2. Discuss the following aspects in detail and illustrate your examples: a. Premium vs. discounted exchange rates your example b. Spot vs. forward rates c. Offer vs. bid rates 3. Discuss the differences between appreciation and depreciation in detail and demonstrate your examples. 4. What is hard and soft currencies? Discuss in detail and also, demonstrate its impact on U.S. exporters and importers. 5. Canadian dollar is deprecated against U.S. dollar. What does this mean to U.S. exporters and Canadian importers? Discuss in detail and show your examples.Explanation / Answer
1. Foreign exchange refers to the exchange of one currency with another. Currencies of different countries can be exchanged for one another on the basis of the ongoing exchange rate. For example, a person traveling to Europe from the USA will need euro as euro is the local currency in Europe. Now, the person will have to buy euro from foreign exchange dealers in the USA by paying in US dollar. The amount of euro received will depend on the exchange rate which is 0.85 Euro per USD at present.
US companies need foreign exchange when they buy goods or services from other companies or when making payment to another party in another country. For example, when a US firm imports materials from China, the company needs to make the Chinese in Chinese Yuan. Therefore, the US company will require getting dollars exchanged for Yuan to pay for the Chinese supplier.
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