Section IV Payment Terms and Procedures.

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Presentation transcript:

Section IV Payment Terms and Procedures

Exchange Rates and International Trade Chapter 10 Exchange Rates and International Trade

Exchange Rate An exchange rate is the number of units of a given currency that can be purchased for one unit of another currency.

Reasons for the Existence of the Foreign Exchange Market Foreign travel Purchase of foreign stocks and bonds Foreign investment and other receipts and payments in foreign currency Reduction of currency fluctuations Speculation

Major Factors that Determine Foreign Exchange Rates Balance of payments Interest rates Growth in the money supply Inflation Confidence in the government

Protection Against Exchange Rate Risks Hedging in financial markets: spot and forward market hedge, swap, acceleration, and delay of payments, etc. Guarantees and insurance coverage Invoicing in one’s own currency Invoicing in foreign currency

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