How would you respond to this answer? If I were an owner of a business in which

Question

How would you respond to this answer?

If I were an owner of a business in which the majority of revenue came from exporting products to other countries I would support a fixed exchange rate system. The reason why is because in a fixed exchange rate system the governemnt cets the exchange rates so they do not change. Therefore if the demand for the products I were exporting to other countries were to rise then my exchange rate would not rise and the company would not have to worry about price fluctuations.

Explanation / Answer

But what if the price of the dollar increases then u would suffer a sever loss ..

Yes its true that if the demand for products increases then ur exchange rate would still be the same .....What if the business is transferred to your SON after 20 years and u have exchange rate of 200 $ now and others have an exchange rate of 200000$ because of the increasing price , U would suffer a severe loss.

These following policies would be better if u opt it when there are price fluctuations

When buying or selling foreign currency you can either do it as and when you need to at the prevailing exchange rate or you can try and do it when the currency exchange rate is advantageous. A very simple form of currency hedging is to exchange the currency in tranches. If you are uncertain if the exchange rate is going for or against you then you can exchange it in parts, thus spreading the exchange rate.

Another currency hedging tool to protect you against fluctuating exchange rates is a 'Forward Contract'. A Forward Contract is a risk management tool that helps you manage your currency requirements. A Forward Contract allows you to agree an exchange rate today to buy or sell currency at a date in the future. A Forward Contract offers many benefits in the exchange currency markets. Payments or receivables in the future can be priced in your currency with certainty and so you can accurately budget and forecast. A Forward Contract is especially attractive if the prevailing exchange rate is in your favour as you get the added benefit of this. Indeed many customers will buy Forward when the rate is good.

On agreeing a Forward Contract a 5% deposit is required (10% is more than 6 months forward). The 95% balance is payable before the contract date allowing your own funds to be employed elsewhere. The Xchange Business can also offer 'Time option Forward Contracts' which allow more flexibility. The contract can be set between two dates and the currency can be 'drawn' in any amounts between these dates.

Reduce risk to foreign currency fluctuations in money markets and achieve exchange rates that work best for your business.

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