Address The Fluctuating Exchange Rates In The Economy (Essay Sample)

EXCHANGE RATES
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EXCHANGE RATES
INTRODUCTION
Exchange rate is the rate at which one country’s currency is valued against another country’s currency. Imports are goods that are produced in a foreign country but are sold in a home country. Exports are goods produced in home country bit are sold in the foreign market. The capability of the businesses trade on imports and exports is greatly influenced by the currency exchange rates. This in turn affects the quality standards set by the business to meet their customers’ expectation. Fluctuation of a country’s currency does not only affect that specific country. It also affects the nations which might to exporting or importing goods to and from that particular country.
Impact of changes in the value pound on Wolff’s hot dog business
Wolff’s hot dog business mainly deals in the importation of hot dog from Germany and Denmark. The home currency is pounds and the foreign currency from where it is importing is euro and Danish krona.
Strong pound
When the Wolff wants to import goods from Germany, it has to enter into the German market (Bown & Crowly (2013). This is achieved by first buying the currency of Germany or even Denmark. When the pound is considered strong against the Euro and Danish krona, imports become very cheap. Wolff is therefore able to import more hot dogs at a fairly lower price. Decline on the value of euro against the pound allows for Wolff to import more hot dogs. The imported hot dog becomes cheaper. This makes it more preferred by the foreign buyers. The increase in demand increases the sales volume by the wolf. This increases the profit that is realized by this importing company
High level of imports leads to the improvement in the current account deficit of the Wolff. The input cost of the business will increase. This important because it helps to keep the company high in the competition. The increase in import of hot dogs could lead to higher rates of economic growth in the company because of increased profit. This is because of increased aggregate demand. Growth is as a result of increased money supply by buyers to the company. The aggregate consumption and demand increases due to the fair prices of the hot dog charged by the company. This ends into economic development of the company.
The decline in the import prices due to strong value of the UK pound against the euro and Danish krona, enables the company to take up to the advantage and import more quality hot dogs (Bown & Crowly 2013). The Wolff’s company is therefore considered more fashionable to other company that might be dealing in hot dos but locally. This enables the company to attract a large number of customers. This enables it to remain more competitive against amid other companies in the market.
If the value of pound remains strong then it also poses the threat of inflation. Increase in the import of hot dogs by wolf and increase in the aggregate demand of hot dogs could lead to demand pull inflation. This may negatively affect the company as it weaken the value of UK pound domestically
Weak pound
According to Bown and Crowly (2013), weak pound against foreign currency lowers imports. When the value of pound declines against the other currencies importation of hot dogs becomes more expensive. It reduces the purchasing power of the citizens who prefer foreign hot dogs. This reduces the sales volume of the hot dogs of the declines due to their increased prices. If the currency remains weak for a longer period of time it can lower the profit of the company in the long run.
(b) Setting Wolff’s hot dog manufacturing business in UK
Businesses would prefer if they if they operate their own manufacturing and selling companies. Due to high cist that it comes with, business individuals or persons prefer to only participate in the selling of finished products, these are products meant for consumption by the consumer. Decision by the Wolff’s manufacturing would have good outcomes though it may be faced with other challenges.
Marketing
Marketing of the products will be easier due to the personal attachment that has been developed by the initial customers. The business will also be able to expand its operation. This will enable it to enjoy the economies of scale. When the business manufactures its goods on its own, it is able to manufacture more to meet the unexpected demand. This is achieved after studying the market trend. The increased volume of sales increases the profit yield to the business.
Job satisfaction
Manufacturing business is perceived to be a tough business. The business of manufacturing is a satisfying one. The ability of a business to manufacture a finished product brings with it job satisfaction....