ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A business that operates completely inside one country
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A business that buys components from other countries and sells products in other countries
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Either A or B
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None of the above
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Detailed explanation-1: -For example, if a company in Japan sells products to a company in the U.S. and the U.S.-based company has to convert dollars into Japanese yen to pay for the goods, the flow of dollars into yen would indicate demand for Japanese yen.
Detailed explanation-2: -That is, the exchange rate is the price of a country’s currency in terms of another currency. For example, if the exchange rate between the U.S. dollar (USD) and the Japanese yen (JPY) is 120 yen per dollar, one U.S. dollar can be exchanged for 120 yen in foreign currency markets.
Detailed explanation-3: -Understanding Foreign Exchange Risk For example, a company based in Canada that does business in China – i.e., receives financial transactions in Chinese yuan – reports its financial statements in Canadian dollars, is exposed to foreign exchange risk.
Detailed explanation-4: -An import/export business exposes itself to foreign exchange risk by having account payables and receivables affected by currency exchange rates. This risk originates when a contract between two parties specifies exact prices for goods or services, as well as delivery dates.