Exchange Rate Exchange rate is the price of a domestic currency in relation to foreign currency. It tells us the amount of rupee that is needed to buy, say, a US Dollar. When the value of Rupee appreciates in relation to the Dollar, the exchange rate is said to have fallen. Similarly, when the value of Rupee depreciates against the Dollar, the rate is said to have risen. Nominal and Real exchange rate Nominal exchange rate is simply the price of domestic currency in relation to another currency.
Individuals: The individuals here means the tourists who exchange the money while travelling abroad and migrants who send part of their earnings to family members living in their home countries. b. Firms: The firm means importers and exporters where an exporter prefers to get his payments in his home currency or in a convertible currency. Importers require the foreign exchange to make payments for their products that are imported. c. Banks: The individuals and firms approach banks to exchange the currency and the banks deal other banks which has foreign exchange departments on behalf of its customers.
The second disadvantages of RMB internalization is that it will increase the difficulty of regulate and monitor the cash flow of RMB in the global financial markets. Since it is quite hard to have a management and monitoring system for the RMB in the offshore market, and thus increase the difficulty of central bank to regulate the cash flow of RMB. Also, RMB may also be associated with some illegal activities such as, smuggling, drug trafficking and so on. It not only affects the stability of Chinese economy, and also increases the difficult to fight against the counterfeiting and money laundering. Overall, it can be seen that RMB internalization has both pros and cons to the economy of China.
Tang studied the exchange rate exposure of Chinese enterprises at the level of industry and enterprise. Chinese enterprises are expanding their business overseas, but because of lack of understanding of the risk of money, exchange rate risks are often ignored in practice. In order to manage exchange rate risk, this study suggests that Chinese enterprises should set up special committees to hedge against future cash flows, especially for non-financial companies (2015, p.605).Polodoo,Seetanah and Sannassee concluded that, as the result shows that much of Africa 's manufacturing industry is affected by exchange rate fluctuations. Exporters are facing risk aversion and African economies should seek help from developed and emerging countries in developing financial markets and hedging tools (2016, p.254). The study of Yazid and Muda shows that multinational corporations are involved in the management of foreign exchange risk mainly because they try to control the overall cash flow by the currency fluctuations.
Flexible exchange rate also call floating exchange rate and usually fluctuation frequently. Flexible exchange rate is affected by the supply and demand of the currency in the foreign markets and free of government intervention. The demand of the currency affect by the exports products or services and the amount of investment of the country. While the supply of the currency affect by the imports products or services and the amount of investment in another countries. When it is excess supply or excess demand, market forces will drive the exchange rate moving to the equilibrium (Appendix 1).
Its main points can be simply stated as: currency exchange rate between the two countries will be based on the difference between the two countries the rate of inflation and adjust accordingly. It shows the relative inflation equilibrium exchange rate between the two countries decide between two
1) Introduction Foreign exchange transaction comprises of everything ranging from converting a currency to another currency by an individual, to giant companies and governments making payments overseas in exchange for goods and services. These foreign transactions are done in various currencies, and for better precision, determination of the exchange rates is crucial. Exchange rates distinctively vary from country to country, owing to the fact that economic variables or determinants of currency values, such as national income, inflation, trade balances, etc., which are inconstant in nature, keep changing from time to time (Wang 2008). For example, if the exchange rate of a particular country is fluctuating at the average rate of 3 per cent per month, in another country it might be fluctuating at 7 per cent per month due to the dissimilarity in the economic variables of these countries. Hence,
Foreign exchange rate is complex and hence it is heavily studied in international macroeconomics. Foreign exchange rate may also be defined as the relationship between the term structures of interest rates of several national currencies. This relationship changes continuously because of
Nigeria has adopted various exchange rate regimes since the post independence era. The system operated by Nigeria before 1973 put naira on par with a dollar, it was a fixed exchange rate system which was in harmony with the Bretton Woods pegged system and subsequently after the collapse of the system Nigeria later in 1986 adopted a deregulated system by allowing naira to find its way in the currency market - the floating exchange rate 2.1.4 Importance of exchange rate Exchange rate remains a very important variable for the attainment of macroeconomic objectives. This is because it has effect on macroeconomic variables. It facilitates international transactions and hence, has implications on other price variables and the general price level. The important role it plays makes governments to take active interest in it.
Exchange rate is relative price of a currency and it determined by flow of currency through the foreign exchange rate market. The exchange rate can be divided into a nominal exchange rate and a real exchange rate. The nominal exchange rate is the rate at which the currencies of two countries can be exchanged, while the real exchange rate is the ratio of what a specified amount of money can buy in one country compared with what it can buy in another.The nominal exchange rate is the rate at which two different currencies are swapped. The real exchange rate explains how expensive commodities are in different countries and reflects the competitiveness of a country’s exports. Exchange rate is influenced by a number of factors including, relative