Exchange Rate Introduction - Forex Management

The increased volatility of exchange rates is one of the main economic developments of recent past. Under the current system of partly floating and partly fixed exchange rates, the earnings of multinational firms, banks, and individual investors have been subjected to significant real and paper fluctuations as a result of changes in relative exchange rates. Although volatile exchange rates may increase risk, they also create profit opportunities for both firms and investors, given a proper understanding of exchange risk management. The international monetary system can be defined as the structure within which foreign exchange rates are determined, international trade and capital flows are accommodated, and balance of payments adjustments made. It also includes all the instruments, institutions, and agreements that link together the world’s currency, money markets, securities, real estate and commodity markets.