Foreign Exchange 1

Foreign Exchange Markets and Transactions

Julia Bellinger

Rasmussen College

International Business

Rama Ramaswamy

May 8, 2011
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Foreign exchange is a commodity in which currency that is issued by a country other than

its own. The rise and fall of this commodity will happen because of supply and demand (Griffin,

W. Ricky & Pustay, W. Michael, 2010). When a country wants to buy goods or services from

another country, and this happens enough where more money is being poured into that other

country their currency will rise, if the demand of products and or services drops so will that

country’s currency.

With this information we can determine that anyone that has money can play a role in the

foreign exchange market. Let’s say that I decide to go to Europe and I leave from the United

States and when I arrive at the air port I only have US dollars, I will need to change the currency

that I am carrying into euro. I am now partaking in foreign exchange. Looking at it in a larger

scale we can think of when Ford exports their vehicles to Europe, which too is also playing a role

in the foreign exchange.

The largest foreign exchange markets are located in London, New York, Tokyo, and

lastly Singapore (Griffin, W. Ricky & Pustay, W. Michael, 2010). This is because of the raw

size of these locations and because of the products and services that are offered in these

locations. Each of these locations are also cities, where there is businesses and shops that cannot

be found anywhere else, this helps in making them stand out amongst other operations. This

helps them play such a large role in the foreign exchange market.

I also found it very interesting that banks play such a large role in the foreign exchange.

This is due to investments that are made and those that are not made. These are investment

bankers that will look at markets to see how they are favoring, would it be wise to let someone

invest in this currency or these goods. They will tell an investor as to which would be best to

invest and which would be good to pull out of if the market is becoming shaky.
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I had never really thought of how this could affect the foreign exchange market until

now. When I thought of foreign exchange I thought of products being sold, services being

bought, people traveling from country to country, but never thought of investments. When I read

about this it was like a light bulb coming on over my head. Investments happen so often and so

much easier than they once did years ago. Someone could see that the yen is rising and invest,

but wait they check out other currencies and hey the dollar is on the rise so they invest more in

that.

If an MNC in the U.S. is interested in doing business in Japan, it would be more

advantageous for the dollar to be lower; this would be because the money that would be spent in

Japan would not be as much as it would have been spent if the dollar was higher. This is not

good for the company accepting the lower worth of the dollar in Japan, but this is another risk

with working in the foreign markets.

If the dollar was higher and the company was doing business in Japan, the company that

was doing the business transactions in Japan would be spending more of their money because the

dollar was higher, making them spend more than at they would have if the dollar was lower. This

would also be true if roles were reversed and a company from Japan was doing business in the

States.
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References

Griffin, W. Ricky & Pustay, W. Michael. (2010). International Business, 6th ed. Prentice Hall:

Upper Saddle River, NJ.