How Businesses Can be Affected by Fluctuating Exchange Rate Euros

December 3rd, 2012

Fluctuations in foreign currency like exchange rate euros are factors in the external environment that can have a positive or negative impact on a business and could even be the difference between its success or failure. Exchange rates are the value of one currency expressed in terms of another. For example £1, the currency used in the UK, might be worth $1.35 in US dollars and €1.21 in Euros, the currency used by EU countries.

An appreciating currency is one that is stronger or increasing in value against another. If we take the pound against exchange rate euros as an example, if the pound is valued at £1 to €1.5 euros and then shifts to £1 versus €1.8, this means the pound is getting stronger against the euro. Conversely if a currency is becoming weaker and depreciating in value against another, the situation would be more like this, £1 to €1.8 euros, shifting to £1 to €1.5 euros, in this example the pound is getting weaker in value.

Foreign currency and foreign currency exchange rates are always shifting and changing, this is due to currencies being based on flexible rates of exchange.  The reason for this is that like products and services, currencies experience a change in demand. Governments, businesses and households require foreign currency outside of their native country to purchase services and goods, for instance holiday makers travelling abroad will want to exchange their pounds for dollars, euros or whatever currency they need for their chosen destination and businesses might want to buy machinery parts or raw materials that they cannot buy on home turf.

If we take Europe as an example, fluctuations in exchange rate euros, it can impact on a business for a number of reasons.  The rate of exchange could increase so that the pound decreases in value against the euro, making products more expensive to buy in. This can be particularly damaging to a business if they are buying large volumes or if the exchange rate fluctuation is particularly dramatic.  The price of imported raw materials may also change which means that businesses have to increase the price of their products to counter the increased cost of production. This could have a knock on effect and result in competitors being more cost attractive if they have been able to maintain the cost of their products. Fluctuations in foreign currency and exchange rate euros or any given currency can have a dramatic effect both on the business or consumer buying that currency and indeed businesses and consumers where the currency is being bought from, all of which has a knock on effect on the global economy as a whole. Visit us at Best Exchange Rates UK for your foreign currency exchange rates.