Exchange Rates – Staying Up on Exchange Rates

One of the most important pieces of information that an investor needs to keep updated on is currency exchange rates. There are few things that affect the value of an international investment more that exchange rates. In order to get a full appreciation for how important exchange rates are to doing business domestically and internationally, you need to understand how even the smallest change in a rate can affect your return on investment. People who deal in investing in currency are especially sensitive to the exchanges all over the world. But you would be surprised at how sensitive almost any rate can be when it comes to a variety of investments.

The most obvious scenario for watching the fluctuation of exchange rates is any investment that involves exchanging money in two different currencies. For example, an American investing in a hotel in Paris, France using American money could lose out on a significant profit if the exchange rates change before he gets his investment completed. If the value of the dollar or the franc changes a few percentage points overnight, then a deal that was originally worth $100,000 in American dollars of profit could drop to $80,000 or less. That is why international business people are always working to close deals and exchange currency so quickly. Both sides want to get the profit they are expecting before the rates change again.

The exchange rates have significant effects at the borders that the United States shares with Canada and Mexico. Every day, millions of dollars of goods are being shipped back and forth across both borders, and the exchange rates could cause havoc for manufacturers on both sides of the border. In most cases, you will find that commerce between borders is done on a pre-paid basis and not paid on delivery. The currency rates can change so quickly, that it makes more sense for businesses to take the chance on getting product pre-paid rather than losing money when the product arrives.

If you are going to get involved in any kind of international trade, then you need to become very familiar with currency exchange rates. Your profit margins and the financial future of your company are at the mercy of exchange rates when you trade with any international vendor for any period of time. Keep a close eye on currency rates when you do international business and always try to get your money up front before you agree to ship.

About Richard Wilson