Foreign Exchange Transactions Introduction - Forex Management

In the globalized economic environment of today, economic activity is globally unified to an unprecedented degree. Thus, changes in one nation’s economy are rapidly transmitted to that nation’s trading partners. These fluctuations in economic activity are reflected, almost immediately in fluctuations in currency values.

The movements of capital across the countries of the world taking the form of foreign direct investment, by Multinational Corporations involve to a greater extent the transaction in the alien countries currencies.

In the domestic economy financial management is concerned with costs of financing sources and the pay offs from investment. However, in the domestic economy movements of exchange rates are substantially ignored. While one move outside into international arena, there is no way that we can analyze international financing and investment opportunities without an understanding of the impact of foreign exchange rates. Foreign investments aimed at overcoming foreign market regulations, reducing production costs, taking advantage of new market opportunities etc. are by no means new or recent origin. However, certain new trends and dimensions of such investments are discernible. The globalization of business has created new trading environment emerging from economic integration and trade agreements among the countries of the world. Economic liberalization in many countries initiated a proactive role by companies with large cash surpluses to venture into foreign business.

If money is the language of business, foreign exchange is the language of international business. In this respect our aim in this unit is to discuss the various facets foreign exchange transactions.

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