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Individual Assignment: Global Financing and Exchange Rate Mechanisms;Choose one of the following topics.;Prepare a 1,050- to 1,750-word paper in which you analyze one of the following global financing;and exchange rate topics;Hard and soft currencies;Define your selected topic.;Explain how your topic is used in global financing operations and describe its importance in;managing risks.;Format your paper according to APA standards.;Global Financing;2;Global Financing and Exchange Rate Mechanisms;There are over 150 major currencies of the world out there, each with a frequently;changing value in relationship to other world currencies. Whether you do business with;international clients and need exchange rates, or you invest and need stock-related information;regarding major world currencies, or you're traveling and need to convert dollars to foreign;currencies, it's important to understand the basics of currencies from around the world.;There are three main areas of interest to the average U.S. citizen investigating world;currencies: the euro (since most Americans travel most often to Europe), the major world;currencies (since they drive economic activity around the world), and the dollar, because the U.S.;Dollar is still a standard for establishing the value of other currencies. The United States took a;long time to establish and really use the dollar as its official currency. Federally minted dollars;were not enforced as currency until the Civil War. But, the world picked up on the U.S. Dollar;right away, and despite the growth of other national economies, the U.S. Dollar remains a;currency standard for the world.;Define Hard and Soft Currencies;A hard currency is a freely convertible currency that is not expected to depreciate significantly in;value in the foreseeable future. A hard currency is considered to be stable, meaning that it is not;subject to dramatic variations in its value relative to other currencies expressed as changes in its;exchange rate. As a general rule, demand for hard currency in foreign exchange markets is high;because of it stability.;A soft currency often is a currency that is not fully convertible to all currencies. For example, it;may be convertible to other soft currencies but not readily convertible against hard currencies.;As a result, soft currencies may not be accepted in international business transactions by the;Global Financing;3;seller either because of concerns about dramatic fluctuations in exchange rates of soft currencies;or because of unrealistic official rates of change.;Basically, soft currency is weak currency. When compared with standards such as the United;States Dollar and the Euro, it does not perform as well, and the radically fluctuating value can;make it very difficult to exchange or trade for hard currency. Many nations with soft currency;also establish an artificially high exchange rate, which makes people even more reluctant to;convert, and when people convert their currency and then attempt to convert it back, they can;lose money in the process, thanks to the value fluctuations of soft currency.;How Hard and Soft Currencies are used in Global Financing Operations;In some nations, there is a mixture of soft and hard currency. This was common in many;Soviet Bloc nations during the 1980s. In these nations, the citizens used the soft currency;associated with the national economy, while visitors had hard currency which they could spend;in certain venues. Visitors were usually reluctant to convert their hard currency into the local;currency, and some governments specifically banned their citizens from holding hard currency;so that valuable hard currencies did not fall into the hands of residents of Soviet Bloc nations.;This could be very frustrating for visitors, as they were not legally allowed to pay for many;goods and services with hard currency.;Intriguingly, in situations where soft and hard currency are mixed, soft currency usually;becomes the dominant currency in the economy, because people horde hard currency, rather than;spending it. This means that the money in circulation tends to be primarily in the form of soft;currency, because hard currency is unavailable. This can make it hard to convert between;currency systems. Prices may also be quoted differently, depending on which type of currency;someone is paying with.;Global Financing;4;Soft currencies are not backed by a commodity standard such as gold or silver, although;lack of such a standard does not necessarily make a currency soft. In some regions, people will;not accept soft currency as legal tender, forcing people who hold soft currency to convert it into;hard currency before they can access goods and services. This can be a significant barrier for;people who are paid in weak currency, as they may find many products out of their price range;as a result.;There are many factors such as political, social, economical and military stability that;play a part in making a currency hard. A country which produces hard currency has many;advantages over those countries that do not. Possessing hard currency makes it much easier to do;business worldwide. It can be equated to have a good credit score and shopping for a car. You;will be much more likely to not just get the car, but get it for cheaper with a good credit score.;Countries like Japan, Brittan and America all have taken full advantage of printing hard;currency. Over the history of currency, countries currency has fluctuated between hard and soft.;The challenges of the worlds currency super powers are to maintain their economic hold and;maintain their hard currency reputation.;Importance in Managing Risks;Explain how your topic is used in global financing operations and describe its importance;in managing risks;In conclusion;Global Financing;5;References;Hill, C. W.L. (2009). International Business. Competing in the Global Marketplace (7th ed.).;New York, NY: McGraw-Hill.;What is Soft Currency? Retrieved May 2, 2010 from http://www.wisegeek.com/what-is-softcurrency.htm;What is Hard Currency? Retrieved May 2, 2010 from http://www.wisegeek.com/what-is-hardsoft-currency.htm;Http://www.Wikipedia.com;Http://www.Sticky-Marketing.com;http://www.buget.ro/finante-banci-investitii-legi/o-DictionaryBuget_m-ViewArticle_id5050/Define_soft_currency.html;http://www.budget.ro.com;http://www.inflationdata.com

 

Paper#31832 | Written in 18-Jul-2015

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