Why international businesses should monitor the forex market 

International businesses face a wide range of challenges, ranging from legal compliance to logistical issues. In particular, navigating exchange rates presents a significant challenge that can directly affect a business’s bottom line. Yet using forex trading platforms like Tradu to track the market could help manage the risks of fluctuating exchange rates. But why is this the case?

In this article, we’ll explain why international businesses should monitor the forex market.

Why do exchange rates fluctuate?

Exchange rate fluctuations are fundamentally caused by changes in supply and demand for a given currency. This can be influenced by economic factors, such as high inflation rates, interest rates and economic growth.

Changes in supply and demand can also be driven by breaking political and economic news, which can shake the perceived reliability and trust of a related currency. For example, the Russian Invasion of Ukraine caused a significant decrease in the value of the Euro against the US Dollar and drove inflation in the euro area.

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How do exchange rates affect businesses?

When the exchange rate of one country increases relative to another, domestic businesses sell their goods and services for more money. Conversely, businesses make less money by selling to countries with higher currency rates.

Exchange rate fluctuations can have a significant influence on the success of a business, directly affecting the profitability of both imports and exports. Euro depreciation is beneficial if your business exports its goods and services, as their price will decrease and therefore demand will grow. Increased demand often leads to increased sales, potentially resulting in greater profits for your business. However, currency depreciation will have the opposite effect if your business mainly deals with imports.

Currency price movements can impact the relative competitiveness of businesses with their global rivals. Exchange rate shifts can create opportunities that European businesses can seize and profit from or threats that harm their bottom line. And for businesses with investments in foreign markets, exchange rate fluctuations can affect the value of their assets and associated returns. Monitoring the forex market allows businesses to anticipate these changes, make informed decisions and adjust their strategies.

The bottom line…

Navigating the intricacies of the forex market is a complex-yet-crucial task for international businesses. Yet while staying on top of fluctuating exchange rates can be challenging, it’s achievable through proactive monitoring. By employing all the resources available to track market trends and understand the underlying factors at play, businesses can stay ahead of the curve and transform potential threats into opportunities for success.