Risks of adverse exchange rate fluctuations

Question

What are the risks of adverse exchange rate fluctuations?

Answer 1

The risks of adverse exchange rate fluctuations are as mentioned below:

1. The instability of exchange rates very much complicates the subject of geographic cost benefits. Currency exchange rates often change as much as 20 to 40 % annually. Changes of this magnitude can either totally clean out a country’s low- cost benefit or transform a former high-cost place into a competitive-cost place.

2. Declines in the worth of the United States dollar against outside currencies decrease or eliminate whatever cost benefit outside manufacturers might have over the U.S. manufacturers and can even prompt outside companies to set up manufacture plants in the United States.

3. Currency exchange rates are rather random, swinging first one method then another method, so the competitiveness of any company’s facilities in any country is partially dependent on whether exchange rate varies over time have a unfavorable or favorable cost impact.

4. Companies making products in one country for export to outside countries always increase in competitiveness as the currency of that county grows weaker. Exporters are drawback when the currency of the country where products are being manufactured grows powerful.