Globalization and International Financial Management Research Paper

Globalization and external Financial Management - Research Paper ExampleFactors such as relative have-to doe with group gait, existing interest rate, relative income level and other government controls are few which affect the determination of permute rate. Governments all across the globe vigilantly monitor their substitute order and actively make the withdraw and indirect intervention for control purposes. Measuring the change in the exchange rate is easier as compared to evaluating the elaborateness of the factors responsible for it. In order to analyze the feature and effect of a change in exchange rate, the concept of exchange rate equilibrium can be utilized. The concept is based on the basics of the law of take and supply. Like a commodity, the foreign bills is also traded in markets where their exchange order are determined based on the current demand and supply of that particular specie in the global economy. In order to grasp the concept, let us take two curr encies into comparison fall in States Dollar ($) and Euro (). The exchange rate of Euro will be determined by the conditions of demand and supply of the currency in Europe. In addition, the demand for Euro in the United States will also be a study factor in ascertain the exchange rate of the currency. ... Inflation rate holds significance in determining the spot exchange rate of a boorish. Inflation rate casts direct impacts on the trading application of a country. Higher inflation in one country would cause its goods to become less plummy in other parts of the world and thus its exchange will deteriorate as the demand for the currency of that particular currency will decline. Interest rates are also one of the factors responsible for fluctuation in the exchange rate. Interest rate can categorize into relative interest rate and real interest rate in order to determine the effect of a change in the exchange rate as a result of its hike and decline. Considering the relative inte rest rate, it can be defined as the change in the interest rate of the country when compared with any other country. If the interest rate in country A rises while the one in country B carcass constant, the investors in the country in A will deter from demanding the currency of country B as for them it is much more lucrative to invest in country A as it offers higher interest rates. Similarly, for investors in country B, it is much more desirable to invest in country A. The investors in country B will then resort to selling their currency in order to obtain the currency of country A. Result, the exchange rate of the country A will escalate when compared with that of country B. This can be more intricate when the effect of change in exchange rate is taken into consideration from a global perspective. The change in the exchange rate of a third can also cause the relative exchange rate between the country A and B although their relative interest rates remain the same.