International Finance

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ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

ABSTRACT

Exchange rates are flexible expressions that may serve as a multiplier, ratio, or price. The exchange rate is a price that determines the allocation of resources internationally. Exchange rate movements are a fundamental factor in the global economy, determining the allocation of resources internationally and affecting the profitability of everyday international transactions. Exchange rates and the global or macro economy are closely related. A country's exchange rate influences exports, imports, job rates, working conditions, external purchasing power of residents abroad, and trade balances.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER NO 1: INTRODUCTION1

Reason for selection of research area1

Research Questions1

Importance of the research1

CHAPTER NO 2: PRIOR RESEARCH3

Translation Risk4

Transaction Risk4

Supply Risk5

Economic Risk5

CHAPTER NO 3: POSSIBLE RESEARCH APPROACH6

CHAPTER NO 4: POTENTIAL OUTCOMES AND THEIR IMPORTANCE7

REFERENCES8

CHAPTER NO 1: INTRODUCTION

Reason for selection of research area

This paper will be discussing the concept of international finance and the topic chosen for this research is exchange rate. The reason for choosing this topic is to know the different types of exchange rate. An exchange rate is a comparison between a national currency and a foreign currency. Exchange rates are flexible expressions that may serve as a multiplier, ratio, or price. The exchange rate is a price that determines the allocation of resources internationally.

Research Questions

The research is based on the following research questions:

What is the effect of exchange rate risk on firm?

What are the various types of exchange rate risk?

Importance of the research

Exchange rate movements are a fundamental factor in the global economy, determining the allocation of resources internationally and affecting the profitability of everyday international transactions. Exchange rate variability and volatility depress trade and the economy in general. In an effort to limit exchange rate variability, international governance organizations, such as Group of Seven (G-7) industrialized countries and the European Union (EU) have explored the possibility of establishing informal target ranges for exchange rates. Currently, there is no international consensus on how currency relations among major regions should be approached or governed (Amato, 2002) .Variables that affect nominal exchange rates include exports, imports, and trade balances; the demand for currency; past and expected values of the financial market; and the interest rate on treasury bonds. Some countries may choose to employ a system of multiple exchange rates (Ball, 2002). Different exchange rates may be used in commercial transactions, public transactions, consumer transactions, and investment transactions. Countries that do not have an explicit policy of multiple exchange rates may choose to unofficially have multiple exchange rates in the form of the official exchange rates and black market exchange rate. Exchange rate classifications are based, in ...