How do exchange rate changes affect a company's marketing, production, and financial decisions? What predictors should a manager monitor to forecast exchange rate changes?

What will be an ideal response?

Marketing managers watch exchange rates because they can affect demand for a company's product at home and abroad. Exchange rate changes affect production decisions. For example, a manufacturer in a country where wages and operating expenses are high might be tempted to locate production in a country with a currency that is rapidly losing value. The company's currency would buy a significant amount of the weak currency, making the company's initial investment cheaper. Furthermore, goods manufactured in that country would be relatively cheap in world markets. Exchange rates can affect financial decisions, primarily in the areas of sourcing of financial resources, remittance of funds across national borders, and reporting of financial results. In general, the best predictors of future exchange rates are interest rates for short-term movements, inflation for medium-term movements, and current account balances for long-term movements. Managers can also monitor a government's institutional setting, fundamental analyses, confidence factors, circumstances, and trends.