How has Forex Changed the World of Business?

by Startacus Admin

The global forex market is a $6.6 trillion-a-day industry, and one that sees the exchange of major, minor and even exotic international currencies.

This marketplace is also highly influential, and as it has continued to grow in size, it has also evolved to have a huge and diverse impact on the commercial realm.

We’ll explore this further below, while asking exactly how the forex market has changed the business world.

1. Fluctuating Exchange Rates

Let’s start with the basics; as the process of international trade and exchanging goods globally is directly impacted by exchange rates, which are in turn influenced directly by the value of international currencies.

In the contemporary marketplace, free-floating exchange rates are used to govern the relationship between currencies, which means that prices are subject to macroeconomic factors such as demand, supply, base interest rates and international trade flows.

In practical terms, this means that the underlying cost of actually doing business can vary significantly for companies, especially when you consider the innate volatility of the forex market.

2. The Role of Base Interest Rates

As we’ve touched on, the forex market (and indeed the wider macroeconomic climate) can also influence the base interest rate adopted by a particular currency.

During periods of economic turbulence or rising inflation, for example, central banks may choose to slash their base interest rate to manage the economy. However, this significantly undermines the value of a country’s currency, as demand falls and capital inflows start to dwindle.

This affects the rates at which a business borrows at, while also affecting the value of any savings held at the time.

3. Political Unrest and Geopolitical Conflict

The world of ‘politica’ and geopolitical conflict can also impact directly on currency values, and the value of trade or holdings in a variety of fiat denominations.

So, if you’re a business with an international focus that operates in a number of different countries, the political landscape within each jurisdiction can impact directly on your overseas performance.

While it’s possible to track the impact of geopolitical news and events on currency prices online, this can be extremely challenging and may undermine your global efforts.

4. The Role of Tourism

As we’ve seen during the Brexit debate and coronavirus pandemic, established currencies such as the Euro and the British pound have wavered and continued to trade within a narrow range.

This means that the value of said currencies is less than it otherwise might have been, creating a scenario where people may be less inclined to travel to particular locations and spend their hard-earned cash.

At the very least, they may have their spending power reduced due to falling exchange rates, affecting businesses that mainly target tourism markets or are seasonal in nature.

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Published on: 26th August 2021