Please respond to the following post in a paragraph with two sources cited. The initial post: In
Question:
Please respond to the following post in a paragraph with two sources cited.
The initial post:
In the present era of increasing globalization and heightened currency volatility, changes in exchange rates have a substantial influence on companies' operations and profitability (Picardo, 2023). As a global auto-parts company, I would use spot and forward markets to manage the potential exchange risk between Japan, who I buy components from, and the states of the European Union, where I sell my auto parts. The outlook for the next two years suggests further gains in store for the dollar, as monetary policy in Japan remains very simulative and the European economy is just emerging out of recession (Picardo, 2023).
A spot market, is a financial market where financial securities like stocks, currencies, commodities are bought and sold for immediate delivery. The USD/JPY is one of the 'major' currency pairs and is widely favored due to high liquidity, low spreads, economic and geopolitical events, market hours, technical analysis, and high volatility (Atfx, 2023). In a forward market the company deals in over-the-counter derivative instruments and thereby agrees to take delivery at a set price and time in the future. By committing to a forward, I would get a fixed EURUSD rate. For example, the actual exchange from EUR to USD will take place three months from now, but I will know my rate immediately. Any future changes in the EURUSD rate thereby will not affect my payment.
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer