Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 60

Foreign Currency Exchange Rates

The Web site shown below provides historical information on the exchange rates of currencies used throughout the world. Review the changes in exchange rates for the last few years. w w w. fe deralre serve. gov/ releases/H10/hist/

Required (choose 1, 2, or 3):

1. Which Asian countries have experienced changing exchange rates relative to the U.S. dollar in the recent few years, and what are the implications of this trend for global companies such as Amazon.com or General Electric?

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2. Most European countries now use the euro as the currency for international exchange. Study the recent trends in the euro and determine the implications of this trend for global companies such as Wal-Mart.

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3. Which North American countries (other than the U.S.) have experienced changing exchange rates relative to the U.S. dollar in the recent year, and what are the implications of this trend for global companies such as Ford Motor Company?

Step 1 of 3

In reviewing the last few years of data for exchange rates, it is important to separate the period up to September of 2008 from the period after September 2008. At that time there was a sharp increase in the value of the dollar against most currencies, due to a variety of factors, including the falling price of oil and recession pressures in some countries. 

See: “The Buck is Back,” The Wall Street Journal,” October 28, 2008

1.?Asian currencies: For 2005 through the summer of 2008,  these currencies have been generally stable relative to the U.S.$, particularly India and Taiwan. The Chinese Yuan was slowly appreciating relative to the dollar during the period as did the Korean Won. The New Zealand and Australian currencies were also increasing in value relative to the dollar during this period, prior to October 2008.

The generally stable exchange rates in the Asian countries (except Japan) are favorable for internet retailers such as Amazon.com or manufacturers such as General Motors, making it simpler to manage its global sales and product sourcing operations. It also removes the uncertainty about exchange rate fluctuations that might have a damaging effect on consumer confidence in these countries. A global manufacturer such as General Motors is also affected by changes in global exchange rates;  as the dollar falls, its products become more competitive abroad and in the U.S., while the products of its Asian competitors become less price competitive.