Global Financing – Hard and Soft Currency

The global finance and exchange rates, the main topic when considering venturing into the business abroad. I will explain in detail the process of how hard and soft currencies. I'll go into detail explaining the reasoning of fluctuating currencies. Finally, we will explain the management of risks in the importance of hard and soft currencies.

hard currency

Hard currencies are generally highly industrialized country, which is widely accepted around the world as a form of payment for goods and services. The hard currency is expected to remain relatively stable for a short time and that the forex market is extremely liquid. Another aspect of the hard currency that the currency should come from politically and economically stable country. The US dollar and the British pound are good examples of hard currency (Investopedia, 2008). Hard currency essentially means that the currency is strong. The terms strong and weak, rising and falling, strengthening and weakening of the currency in the world in relative terms (known as "forex"). Rising and falling, to strengthen and weaken both a change in the relative position of the previous level. If the dollar "Confirm", the value increases, the one or more other currencies. The strong dollar will buy more units of foreign currency than before. One result was a stronger dollar that the price of foreign goods and services dispose of American consumers. This allows the Americans to long-postponed vacation to another country, or buy a foreign car that was once too expensive. American consumers & # 39; They benefit from the strong dollar, but US exporters were injured. A strong dollar means it takes more dollars to buy foreign currency. US goods and services more expensive for foreign consumers who, as a result, tend to buy fewer US products. Because it takes longer for the purchase of foreign currency strong dollar, the price of products sold overseas more expensive in dollars (chicagofed, 2008).

Soft currency

Soft currency is another name for "weak currency". The values ​​of the soft currencies can fluctuate often, and other countries do not want to keep these currencies because of political and economic uncertainty in the country with a soft currency. Currency held in most developing countries, in the case of a soft currency. Often, governments are unrealistically high exchange rates, pegging a currency currency like the US dollar (to invest in it, 2008) defined these developing countries. Soft currency breaks down the currency to be very poor, an example of this would be the Mexican peso. A weak dollar can hurt some people and benefit others. If the value of the dollar falls, or weaken in relation to other currencies, the prices of goods and services in the country will rise to US consumers. This is the same amount of dollars to buy foreign currency to buy goods and services more. That means US consumers and US companies that import products decreased purchasing power. At the same time, a weak dollar means that American goods prices fall in foreign markets, which will benefit American exporters and foreign consumers. The weak dollar will buy less foreign currency unit is the right amount of dollars to buy American goods. As a result, the consumer can buy American products less money in other countries.

Fluctuating currencies

Many things can contribute to fluctuations in the currency. Some are strong and weak currencies

factors that contribute to a strong currency
Higher interest rates in his country than
Lower inflation
abroad compared to domestic trade surplus with other countries
a large, unified government deficit crowding out domestic borrowing
political or military unrest in other countries
a strong domestic financial markets
strong domestic economy / weaker foreign economies
There is no record of default on government debt
aims Sound monetary policy is price stability.
factors contributing to the weak currency
Lower interest rates in his country and abroad
Higher inflation
domestic trade deficit relative to other countries
Consistent government surplus
Relative political / military stability in other countries
a collapsing domestic financial market
Weak domestic economy / stronger foreign economies
frequent or recent default of government debt
monetary policy changes often targets

it is important to address the risks

When venturing abroad a number of risk factors to be addressed, and to control these factors is essential for a company's success. Economic risk roughly summed up a set of macroeconomic events that might impair the enjoyment of all the expected returns of investment. Some analysts further segment the economic risk of financial factors (these factors lead inconvertibility of currencies, such as the foreign debt and current account deficits, and so on) and economic factors (factors such as the public finances, inflation and other economic factors could lead to higher taxes or a sudden and desperate government has restricted foreign investors & # 39; & # 39 or lenders; rights). Alta Group, 2008. The decisions of companies to invest in another country is a significant impact on the domestic economy. In the case of the United States, the desire of foreign investors to hold dollar-denominated assets helped finance the US government & # 39; and a large budget deficit and the funds transferred to private credit markets. According to the laws of supply and demand, increased supply of funds – in this case, the funds provided to other countries – tends to lower the price of those funds. The price of the funds rate. The growth of the extended supply sources helped to finance the budget deficit by foreign investors and helped to keep interest rates below what they would have been without foreign capital. A strong currency can be both positive and negative effects of the nation & # 39; s economy. The same is true of the weak currency. Currencies that are too strong or too weak will affect not only individual economies, but they tend to distort international trade and economic and political decisions in the world.

Conclusion

Hard currencies are generally highly industrialized country, which is widely accepted around the world as a form of payment products and services. The hard currency is expected to remain relatively stable for a short time and that the forex market is extremely liquid. Soft currency is another name for "weak currency". The values ​​of the soft currencies can fluctuate often, and other countries do not want to keep these currencies because of political and economic uncertainty in the country with a soft currency. Many things can contribute to fluctuations in currency Some of these things, inflation, strong financial markets and political or military unrest. The decisions of companies to invest in another country is a significant impact on the domestic economy. In the case of the United States, the desire of foreign investors to hold dollar-denominated assets helped finance the US government & # 39; and a large budget deficit and the funds transferred to private credit markets.

Source by Rob Zillla


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