BUS FPX 4016 Assessment 3 Currency Exchange Risks

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Capella University

BUS-FPX4016 Global Business Relationships

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Date

Introduction

Numerous products sold in the United States are sourced from other countries, necessitating considerations regarding currency exchange rates. This paper delves into the influence of the Japanese yen on selling Japanese products in the United States.

Analysis of Exchange Rate Influence

The present exchange rate between the Japanese yen and the U.S. dollar indicates the yen’s relative weakness, with 1 yen equivalent to 0.0095 dollars, requiring 105.62 yen for 1 U.S. dollar (Japanese Yen Exchange Rates Table Converter, n.d.). Consequently, importing goods from Japan becomes more cost-effective compared to domestically produced equivalents, enabling companies to generate substantial profits by selling these products in the United States.

Effects of Exchange Rate Changes on Export Profitability

Fluctuations in exchange rates pose a risk to profitability in exporting goods to the United States. Even minor shifts can significantly impact expenses. For instance, if the yen strengthens, companies may face increased costs, potentially resulting in diminished profits. Conversely, a weaker yen could enhance profitability as costs decrease. To mitigate these risks, many companies opt to conduct transactions solely in a stable currency, such as the U.S. dollar, thereby minimizing exposure to exchange rate fluctuations (International Trade Association, n.d.).

BUS FPX 4016 Assessment 3 Currency Exchange Risks

Identification of Management Risks

Managing foreign exports entails various risks, primarily linked to exchange rate fluctuations. Notably, significant devaluation of the yen due to factors like inflation in Japan could disrupt operations, leading to production constraints and reduced supply of Japanese goods for U.S. markets (Chen, 2020). Additionally, a weakened U.S. dollar poses risks for American companies, potentially impeding their ability to settle debts or afford imported products, thus impacting profitability negatively (Chen, 2020).

References

Chen, J. (2020, August 28). Currency Risk. Retrieved October 10, 2020, from https://www.investopedia.com/terms/c/currencyrisk.asp

International Trade Association. (n.d.). Foreign Exchange Risk. Retrieved October 10, 2020, from https://www.trade.gov/foreign-exchange-risk

Japanese Yen Exchange Rates Table Converter. (n.d.). Retrieved October 10, 2020, from https://www.x-rates.com/table/?from=JPY

BUS FPX 4016 Assessment 3 Currency Exchange Risks