Exam questions Essay Example | Topics and Well Written Essays - 1250 words - 1

Exam questions - Essay Example In addition, exchange rates can make it quite difficult or easier for foreign competition to penetrate the local markets. Exchange rates can also have a direct impact on the losses and profits in a business. Fluctuations in exchange rates can negatively or positively affect both exports and imports. Thus the cost of raw materials that are imported could be more or less on the basis of the exchange rate between two trading nations which may lead to either hard or easy export. When more money is used in producing goods which are exported to a different nation with a less currency rate, it leads to those goods being less priced leading to the business having losses. Because of these changes in exchange rates when importing or exporting, the government gets interested in the exchange rates between currencies of other countries. Thus whenever goods are produced in a different nation, the government concentrates on selling of those goods so as to get more money from other nations from its exports. Production of such goods is usually done at low prices making use of the currency with the country having low currency rate and then profits are gotten by selling the produce in a country having a high currency rate. Such conversion of currencies in the production as well as selling of a similar product is aimed at earning profit. In addition, the government is dependent on some controls that control the exchange rate and these controls are long-term, medium-term and short-term. For instance, in short-term, the major banks like Central Bank operate with foreign markets by either beginning to buy or sell its currency. The interest rate on currency on the medium term can be regulated to make profit only. On the other hand, on the long-term, management of the economy is in such a manner that it results in a direct increase in the demand and value of the products manufactured in the nation (imports) with the demand for foreign currency also increasing. For a country