THE IMPORTANCE OF EXCHANGE RATES FOR BUSINESSES

Recently, with the increase in exchange rates in our country, many businesses have been affected by this situation. These effects may be different for businesses doing international business. For example, while enterprises that make intensive exports can make more profit, enterprises that carry out their transactions on heavy imports may make a loss.

First of all, it is useful to know that exchange rates affect the demand for a business's products in the global market. A country with a weak (undervalued relative to other currencies) currency will experience a decrease in export prices and an increase in import prices. The fact that the prices of the products exported by this country in the world markets are lower, gives the companies the opportunity to get market share from the companies whose products are higher priced. In addition, a business can increase its profits if it funds from a country with a weak currency and sells its products in a country with a strong (higher value currency relative to other currencies) currency. For example, if a business pays its workers and suppliers in a falling local currency and sells its products in a rising currency, it receives benefits because it generates revenues in the strong currency while paying its expenses in the weak currency.

As a result, while it is easier to do business in a market where exchange rates are more stable, it can put pressure on local businesses in countries with more floating exchange rates. At this point, international businesses need to be more careful about decision making and risk analysis.
 
Source:
John J. Wild, K. L. (2017). Uluslararası İşletmecilik: Küreselleşmenin Zorlukları (8.Baskıdan Çeviri). (Çev. Arı G.S.). Ankara: Nobel Akademik Yayıncılık.
 
Çağlar KARAKURT
Research Assistant
Istanbul Gelisim University
Faculty of Economics, Administrative and Social Sciences
Department of International Trade and Business