Foreign exchange markets make it possible for trade to be enacted between countries without lengthy negotiations on trade terms. The exchange rate mechanism is a relatively stable process whereby different currencies can be exchanged in an orderly manner in conformity to the rules of currency exchange rates. Factors, such as the relative inflation and unemployment rates between the trading partners, affect the value of each country’s currency in relation to the other countries' currency. The country with higher inflation and unemployment will have the lower valued currency.
(A) Why is the foreign currency exchange market important to a business?
(B) What is the benefit of the foreign currency exchange market to the U.S. company?
(C) If the U.S. currency is decreasing versus other currencies of countries it trades with, how will that affect the U.S. company? If the reverse is true, how will that affect the US company?