| The entire world's economic system depends upon | | | | they devalued their currency. As a result they |
| the exchange rate. For this reason, it is very | | | | attracted a plethora of foreign investors to their |
| important you learn how it works. How the currency | | | | country. Many foreign businesses invested in Brazil's |
| exchange rates effect global business is like a | | | | retail market, manufacturing companies, construction, |
| thermometer, it measures the health of global | | | | tourism, banking, communication companies and many |
| economics. | | | | other industries boosting Brazil's economic system. |
| First, you must understand by definition what the | | | | Today, Brazil is benefiting by this sudden burst in its |
| exchange rate is. It is the value of one nation's | | | | economy and the quality of life is greatly improving |
| currency in comparison to another or to put it | | | | there. |
| another way, if you took one U.S. dollar to Canada, | | | | Now you can see how the currency exchange rates |
| would you be able to buy more than one item at a | | | | effect global business becomes very important to |
| Dollar Store or not even one item? | | | | world trade. All of these things have an effect on |
| The laws of supply and demand dictate how the | | | | you. Your investment accounts, your 401K, even |
| currency exchange rates effect global business with | | | | your own job are all affected by the global economy. |
| something called a floating exchange rate. A floating | | | | Exchange rates are very important in determining |
| exchange rate means that currency values "float" or | | | | which country, even which businesses globally will |
| fluctuate depending on how much supply is being | | | | have the competitive advantage. |
| demanded from that country in comparison to the | | | | The law of supply and demand state that when |
| other country with which it is doing business. It is the | | | | prices are low, people buy, when they are high, they |
| global market that dictates which country's dollar is | | | | do not. The same works for world trade. If Japan |
| worth the most. | | | | can buy the same product for less from Germany |
| Governments can play a part in how the currency | | | | than it can from the U.S., Japan will buy from |
| exchange rates affect global business as well. Many | | | | Germany and the U.S. has just lost its competitive |
| governments will put into place certain actions that | | | | advantage. |
| will purposely devalue their own dollar. Why would | | | | The next time you consider taking a vacation to a |
| they do this? It seems counterproductive, but | | | | foreign country, think about the exchange rate in a |
| actually it isn't. By deflating the value of their own | | | | way that is more than just how much vacation will |
| dollar, that country will cause an increase in the | | | | you be able to purchase. Think about whose country |
| demand for their supplies, kind of like when a store | | | | has the higher value in their currency, because now |
| puts on a sale and attracts a crowd to their store. | | | | you know what it means to you. |
| A few years ago, a struggling Brazil did just that, | | | | |