Exchange Rates: What They Are and How They Can Impact Your Business
As an international business, you may have ongoing international payments in different currencies flowing into your bank account or may need to pay suppliers in a currency different from your home currency.
Therefore, it is inevitable to understand how one of the most liquid financial markets works and eventually, gain profits through these value fluctuations.
This article will outline everything you need to know about exchange rates, including what they are, why they matter to your business, and how you can make them work for you.
Let’s dive right in.
What Is an Exchange Rate?
In essence, an exchange rate is the price of one currency in terms of another. It's like a price tag you see when you're swapping one item for another.
For example, if you're buying products from Chinese suppliers, the price might be listed in Yuan. The exchange rate will help you figure out how much it will cost in your home currency.
Countries don’t necessarily always use their own official currencies.
Sometimes, countries with smaller economies adopt a currency from a larger, more stable economy. This is often done to combat inflation, promote economic stability, and facilitate trade.
Take Ecuador as an example. Instead of using their country’s currency, they prefer to use the U.S. dollar to address hyperinflation and stabilize their economy.
Similarly, France, Germany, Italy, and other European countries adopted the Euro as a common currency to promote economic integration and facilitate trade within the Eurozone.
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