Comparison of Two Systems

Comparison of Two Systems

In order to discuss the different types of foreign exchange systems, we first have to note the five main currencies that are used in currency trading. The world’s main currency is the US dollar. Generally all currencies are quoted in those terms. In second place would be the Euro, The third most traded currency is the Japanese Yen, although the yen is very liquid around the world it does have a much smaller presence internationally than the US dollar or the euro. Fourth place goes to British pound followed by the Swiss franc. (Lanval 2009).

Currency risk is an important consideration because exchange rates are unpredictable, majority of companies buy foreign inputs or sell outputs in other countries and contracts for purchases are made far in advance. It is a known fact that strong dollar equals a weak foreign currency, which has the advantage of being able to acquire foreign services and goods including travel cheaper. The disadvantage is that US exports are more expensive, making companies that sell abroad less competitive. Inversely, a weak dollar equals a strong foreign currency that has the advantage of helping the US exports, our services and goods are now cheap overseas, which has the disadvantage of hurting our imports and our consumers. When our imports are more expensive, things like coffee, bananas and oil will cost our US consumers much more. (MJ Perry)

The foreign exchange system almost has a foreign language all of its own. There are the different exchange rate systems such as flexible, fully fixed, semi-fixed, and free floating then there is the different terminologies such as retail tier, wholesale tier, spot market, forward market, bid price, ask price, spread and many more. All of which tells me it is not advisable for a novice to jump into.

Unbeknownst to some people, Global marketing and international marketing are not the same thing. Basically global marketing is selling one product all over the world...