FOREIGN NATIONAL ENVIRONMENTS:Conciliation, Mediation, Global relevance

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International Marketing MKT630

Lesson # 12

FOREIGN NATIONAL ENVIRONMENTS

Dispute resolution and Exchange Rate Environments

Dispute resolution in international business:

Following issues are raised when thinking of business dispute resolution by international marketers;

Which country's law applies?

In which country should the issue be resolved?

What technique should be used to resolve the conflict?

How will the settlement be enforced?

The above questions are answered in following section.

Methods of International Business Dispute Resolution:

Methods of international business dispute resolution include:

Lawsuits (litigation)

Negotiations

Conciliations

Mediation

Arbitration

One could theoretically include violence or even war as part of this spectrum, but dispute resolution

practitioners do not usually do so; violence rarely ends disputes effectively, and indeed, often only

escalates them. Some individuals, notably Joseph Stalin, have stated that all problems emanate from

man, and absent man, no problems ensue. Hence, violence could theoretically end disputes, but

alongside it, life.

Dispute resolution processes fall into two major types:

Adjudicative processes, such as litigation or arbitration, in which a judge, jury or arbitrator

determines the outcome.

Consensual processes, such as mediation, conciliation, or negotiation, in which the parties

attempt to reach agreement.

Not all disputes, even those in which skilled intervention occurs, end in resolution. Such intractable

disputes form a special area in dispute resolution studies.

Conciliation

Conciliation is an alternative dispute resolution process whereby the parties to a dispute (including

future interest disputes) agree to utilize the services of a conciliator, who then meets with the parties

separately in an attempt to resolve their differences. Conciliation differs from arbitration in that the

conciliation process, in and of itself, has no legal standing, and the conciliator usually has no authority

to seek evidence or call witnesses, usually writes no decision, and makes no award. Conciliation differs

from mediation in that the main goal is to conciliate, most of the time by seeking concessions. In

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mediation, the mediator tries to guide the discussion in a way that optimizes parties needs, takes feelings

into account and reframes representations.

In conciliation the parties seldom, if ever, actually face each other across the table in the presence of the

conciliator. (This latter difference can be regarded as one of species to genus. Most practicing mediators

refer to the practice of meeting with the parties separately as "caucusing" and would regard conciliation

as a specific type or form of mediation practice -- "shuttle diplomacy" -- that relies exclusively on

caucusing. All the other features of conciliation are found in mediation as well.)

If the conciliator is successful in negotiating an understanding between the parties, said understanding is

almost always committed to writing (usually with the assistance of legal counsel) and signed by the

parties, at which time it becomes a legally binding contract and falls under contract law.

Recent studies in the processes of negotiation have indicated the effectiveness of a technique which

deserves mention here. A conciliator assists each of the parties to independently develop a list of all of

their objectives (the outcomes which they desire to obtain from the conciliation). The conciliator then

has each of the parties separately prioritize their own list from most to least important. She then goes

back and forth between the parties and encourages them to "give" on the objectives one at a time,

starting with the least important and working toward the most important for each party in turn. The

parties rarely place the same priorities on all objectives, and usually have some objectives which are not

on the list compiled by parties on the other side. Thus the conciliator can quickly build a string of

successes and help the parties create an atmosphere of trust which the conciliator can continue to

develop.

Most successful conciliators are highly skilled negotiators. Some conciliators operate under the auspices

of any one of several non-governmental entities, and for governmental agencies such as the Federal

Mediation and Conciliation Service.

Mediation

Mediation in legal terminology comprises an act of bringing two states, sides or parties in a dispute

closer together toward agreement through alternative dispute resolution, a dialogue in which a

(generally) neutral third party, the mediator, using appropriate techniques, assists two or more parties to

help them negotiate an agreement, with concrete effects, on a matter of common interest. More

generally speaking, the term "mediation" covers any activity in which an impartial third party (often a

professional) facilitates an agreement on any matter in the common interest of the parties involved.

Mediation applies to different fields, with some common peculiar elements and some differences for

each of its specialties. The main fields of mediation include commerce, legal disputes and diplomacy,

but forms of mediation appear in other fields as well. Mediation in marriage technically belongs in the

category, although it has followed its own peculiar history since the times of ancient Greeks: compare

marriage counseling.

Common aspects of mediation

Mediation as a process involves a third party (often a neutral third party) assisting two or more persons,

("parties" or "stakeholders") to find mutually-agreeable solutions to difficult problems.

People make use of mediation at all levels and in all contexts, from minor disputes to global peace talks.

This makes it difficult to provide a general description without referring to practices in specific

jurisdictions - where 'mediation' may in fact have a formal definition and in some venues may require

specific licenses. This article attempts only a broad introduction, with more specific processes (such as

peace process, binding arbitration, or mindful mediation) referred to directly in the text.

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While some people loosely use the term 'mediation' to mean any instance in which a third party helps

people find agreement, professional mediators generally believe it essential that mediators have

thorough training, competency, and continuing education.

Some few of the types of business disputes or decision-making that often go to mediation include the

following:

Financial or budget disagreements

Family businesses

Estate disputes

Workplace:

Wrongful termination

Discrimination

Harassment

Grievances

Labour management

Public disputes

Environmental

Land use

Disputes involving the following issues:

Landlord-tenant

Homeowners' associations

Builders/contractors/realtors/homeowners

Contracts of any kind

Medical malpractice

Personal injury

Partnerships

Non-profit organizations

Mediation commonly includes the following aspects or stages:

a controversy, dispute or difference of positions between people, or a need for decision-making

or problem-solving;

decision-making remaining with the parties rather than imposed by a third party;

the willingness of the parties to negotiate a positive solution to their problem, and to accept a

discussion about respective interests and objectives;

the intent to achieve a positive result through the facilitative help of an independent, neutral

third person.

In the United States, mediator codes-of-conduct emphasize 'client-directed' solutions rather than those

imposed by a mediator in any way. This has become a common, definitive feature of mediation in the

US and in the UK.

Mediation differs from most other adversarial resolution processes by virtue of its simplicity,

informality, flexibility, and economy.

The typical mediation has no formal compulsory elements, although some common elements usually

occur:

each party allowed to explain and detail his/her story;

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the identification of issues, usually facilitated by the mediator;

the clarification and detailed specification of respective interests and objectives;

the conversion of respective subjective evaluations into more objective values;

identification of options;

discussion and analysis of the possible effects of various solutions;

the adjustment and the refining of the proposed solutions;

the memorialization of agreements into a written draft

Due to the particular character of this activity, each mediator uses a method of his or her own (a

mediator's methods are not ordinarily governed by law), that might eventually be very different from the

above scheme. Also, many matters do not legally require a particular form for the final agreement, while

others expressly require a precisely determined form. Most countries respect a mediator's

confidentiality.

Mediation in business and in commerce

The eldest branch of mediation applies to business and commerce, and still this one is the widest field of

application, with reference to the number of mediators in these activities and to the economical range of

total exchanged values.

The mediator in business or in commerce helps the parties to achieve the final goal of respectively

buying/selling (a generical contreposition that includes all the possible varieties of the exchange of

goods or rights) something at satisfactory conditions (typically in the aim of producing a bilateral

contract), harmonically bringing the separate elements of the treaty to a respectively balanced

equilibrium. The mediator, in the ordinary practice, usually cares of finding a positive agreement

between (or among) the parties looking at the main pact as well as at the accessory pacts too, thus

finding a composition of all the related aspects that might combine. in the best possible way, all the

desiderata of his clients.

This activity is sometimes scholastically included among those of the auxiliary activities of commerce

and business, but it has to be recalled that it differs from the generality of the others, because of its

character of independence from the parties: in an ordinary activity of agency, or in the unilateral

mandate this character is obviously missing, this kind of agent merely resulting as a longa manus of the

party that gave him his (wider or narrower) power of representation. The mediator does not obey to any

of the parties, and is a third party, looking at the contraposition from an external point of view.

Subfields of commercial mediation include work in well-known specialized branches: in finance, in

insurance, in ship-brokering, in real estate and in some other individual markets, mediators have

specialised designations and usually obey special laws. Generally, mediators cannot practice commerce

in the genre of goods in which they work as specialized mediators.

Competence of the mediator

Numerous schools of thought exist on identifying the 'competence' of a mediator. Where parties retain

mediators to provide an evaluation of the relative strengths and weaknesses of the parties' positions,

subject-matter expertise of the issues in dispute becomes a primary aspect in determining 'competence'.

Some would argue, however, that an individual who gives an opinion about the merits or value of a case

does not practise true mediation, and that to do so fatally compromises the alleged mediator's neutrality.

Where mediators are expected to be process experts only (i.e., having been employed to use their skills

to work through the mediation process without offering evaluations as to the parties' claims) competence

is usually demonstrated by the ability to remain neutral and to move parties though various impasse

points in a dispute. International professional organizations continue to debate what 'competency'

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means. Current information can be obtained from professional associations such as the Association for

Conflict Resolution.

Mediation as a method of dispute resolution

In the field to resolving legal controversies, mediation is an informal method of dispute resolution, in

which a neutral third party, the mediator, attempts to assist the parties in finding resolution to their

problem through the mediation process. Although mediation has no legal standing per se, agreements

between the parties can (usually with assistance from legal counsel) be committed to writing and signed,

thus rendering a legally binding contract in some jurisdiction specified therein.

Mediation differs from most other conflict resolution processes by virtue of its simplicity, and the clarity

of its rules. It is employed at all scales from petty civil disputes to global peace talks. It is thus difficult

to characterize it independently of these scales or specific jurisdictions - where 'Mediation' may in fact

be formally defined and may in fact require specific licenses. There are more specific processes (such as

peace process or binding arbitration or mindful mediation) referred to directly in the text.

Safety, fairness, closure

These broader political methods usually focus on conciliation, preventing future problems, rather than

on focused dispute-resolution of one matter.

Mediation can be reasonably seen as the simplest of many such processes, where there is no great

dispute about political context, jurisdiction has been agreed, whatever process selected the mediator is

not in doubt, and there is no great fear that safety, fairness and closure guarantees will be violated by

future bad-faith actions.

If some warranty of safety, fairness, and closure can be assumed, then the process can reasonably be

called 'mediation proper', and be described thus:

Mediation with arbitration

Mediation has sometimes been utilized to good effect when coupled with arbitration, particularly

binding arbitration, in a process called 'mediation/arbitration'. In this process, if parties are unable to

reach resolution through mediation, the mediator becomes an arbitrator, shifting the mediation process

into an arbitral one, seeking additional evidence as needed (particularly from witnesses, if any, since

witnesses are normally not called upon by a mediator), and finally rendering an arbitral decision.

This process is more appropriate in civil matters where rules of evidence or jurisdiction are not in

dispute. It resembles, in some respects, criminal plea-bargaining and Confucian judicial procedure,

wherein the judge also plays the role of prosecutor - rendering what, in Western European court

procedures, would be considered an arbitral (even 'arbitrary') decision.

Mediation/arbitration hybrids can pose significant ethical and process problems for mediators. Many of

the options and successes of mediation relate to the mediator's unique role as someone who wields

coercive power over neither the parties nor the outcome. If parties in a mediation are aware the mediator

might later need to act in the role of judge, the process could be dramatically distorted. Thankfully,

mediation-arbitration often involves using different individuals in the role of mediator and (if needed

later) arbitrator, but this is not always the case.

Mediator liability

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The role of mediator is less controversial than the role of judge, if only because a mediator may only

propose, rather than impose, a contract.

The assumed moral or legal responsibility, or even liability, of the mediator differs drastically in

different methods - for instance, in global political negotiations, it is often difficult to find anyone who

is sufficiently trusted by both sides to even get a peace process to begin. Accordingly, liability is not

assigned to the mediator no matter how badly things go wrong - doing so would discourage future

efforts to help.

Global relevance

The rise of international trade law, continental trading blocs, the World Trade Organization (and its

opposing anti-globalization movement), use of the Internet, among other factors, seem to suggest that

legal complexity has started to reach to an intolerable and undesirable point. There may be no obvious

way to determine which jurisdiction has precedence over which other, and there may be substantial

resistance to settling a matter in any one place.

Accordingly, mediation may come into more widespread use, replacing formal legal and judicial

processes sanctified by nation-states. Some, like the anti-globalization movement, believe such formal

processes have quite thoroughly failed to provide real safety and closure guarantees that are pre-

requisite to uniform rule of law.

Following an increasing awareness of the process, and a wider notion of its main aspects and eventual

effects, mediation is in recent times frequently proposed as a form of resolution of international

disputes, with attention to belligerent situations too.

However, as mediation ordinarily needs to be required by the interested parties and it would be very

difficult to impose it, in case one of the parts refuses this process it cannot be a solution.

Fairness

As noted, mediation can only take place in an atmosphere where there is some agreement on safety,

fairness and closure, usually provided by nation-states and their legal systems. But increasingly disputes

transcend those borders and include many parties who may be in unequal-power relationships.

In such circumstances, with many parties afraid to be identified or to make formal complaints,

terminology or rules of standing or evidence slanted against some groups, and without power to enforce

even "legally binding" contracts, some conclude that the process of mediation would not reasonably be

said to be 'fair'.

Accordingly, even when it is offered and attempts are made to make it fair, mediation itself might not be

a fair process, and other means might be pursued.

From a more technical point of view, however, one must recall that the mediation must be required by

the parties, and very seldom can it be imposed by "non-parties" upon the parties. Therefore, in presence

of entities that cannot be clearly identified, and that practically don't claim for their recognition as

"parties", the professional experience of a mediator could only apply to a proposal of definition, that

besides would always miss the constitutional elements of a mediation. Moreover, in such circumstances,

the counter-party of these eventual entities would very likely deny any prestige of 'party' to the

opponent, this not consenting any kind of treaty (in a correct mediation).

More generally, given that mediation ordinarily produces agreements containing elements to enforce the

pacts with facts that can grant its effectiveness, note that the legal system is not the only means that will

ensure protection of the pacts: modern mediation frequently tends to define economical compensations

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and warranties too, generally considered quicker and more effective. The concrete 'power' of an

agreement is classically found in the equilibre of the pact, in the sincere conciliation of respective

interests and in the inclusion of measures that would make the rupture of the pact very little convenient

for the unfaithful party. Pacts that don't have such sufficient warranties are only academically effects of

a mediation, but would never respect the deontology of the mediator.

Arbitration

Arbitration is a form of mediation or conciliation, where the mediating party is given power by the

disputant parties to settle the dispute by making a finding. In practice arbitration is generally used as a

substitute for judicial systems, particularly when the judicial processes are viewed as too slow,

expensive or biased. Arbitration is also used by communities which lack formal law, as a substitute for

formal law.

Commercial and other forms of contract arbitration

Agreements to arbitrate were not enforceable at common law, though an arbitrator's judgment was

usually enforceable (once the parties had already submitted the case to him or her). During the Industrial

Revolution, this situation became intolerable for large corporations. They argued that too many valuable

business relationships were being destroyed through years of expensive adversarial litigation, in courts

whose strange rules differed significantly from the informal norms and conventions of businesspeople

(the private law of commerce, or jus merchant). Arbitration appeared to be faster, less adversarial, and

cheaper.

The result was the New York Arbitration Act of 1920, followed by the United States Arbitration Act of

1925. The USAA is now known as the Federal Arbitration Act. Thanks to the subsequent judicial

expansion of the meaning of interstate commerce, the U.S. Supreme Court reinterpreted the FAA in a

series of cases in the 1980s and 1990s to cover the full scope of interstate commerce. In the process, the

Court held that the FAA preempted many state laws covering arbitration, some of which had been

passed by state legislatures to protect their consumers against powerful corporations.

Since commercial arbitration is based upon either contract law or the law of treaties, the agreement

between the parties to submit their dispute to arbitration is a legally binding contract. All arbitral

decisions are considered to be "final and binding." This does not, however, void the requirements of

law. Any dispute not excluded from arbitration by virtue of law (e.g. criminal proceedings) may be

submitted to arbitration.

Other forms of contract arbitration

Arbitration can be carried out between private individuals, between states, or between states and private

individuals. In the case of arbitration between states, or between states and individuals, the Permanent

Court of Arbitration (Hague Tribunal) and the International Center for the Settlement of Investment

Disputes (ICSID) (an institution of the World Bank Group) are the predominant organizations.

Arbitration is also used as part of the dispute settlement process under the WTO Dispute Settlement

Understanding. International arbitral bodies for cases between private persons also exist, the

International Chamber of Commerce Court of Arbitration being the most important. The American

Arbitration Association is a popular arbitral body in the United States. The National Arbitration Forum

is another leading arbitration provider in the United States. Arbitration also exists in international sport

through the Court of Arbitration for Sport.

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A growing trend among employers whose employees are not represented by a labor union is to establish

an organizational problem-solving process, the final step of which consists of arbitration of the issue at

point by an independent arbitrator, to resolve employee complaints concerning application of employer

policies or claims of employee misconduct. Employers in the United States have also embraced

arbitration as an alternative to litigation of employees' statutory claims, e.g., claims of discrimination,

and common law claims, e.g., claims of defamation. Currently found in open Brazillian markets and

misc. benches.

Labor arbitration

Arbitration has also been used as a means of resolving labor disputes for more than a century. Labor

organizations in the United States, such as the National Labor Union, called for arbitration as early as

1866 as an alternative to strikes to resolve disputes over the wages, benefits and other rights that

workers would enjoy. Governments have also relied on arbitration to resolve particularly large labor

disputes, such as the Coal Strike of 1902.

This type of arbitration is commonly known as interest arbitration, since it involves the mediation of the

disputing parties' demands, rather than the disposition of a claim in the manner a court would act.

Interest arbitration is still frequently used in the construction industry to resolve collective bargaining

disputes. The United Steelworkers of America adopted an elaborate form of interest arbitration, known

as the Experimental Negotiating Agreement, in the 1970s as a means of avoiding the long and costly

strikes that had made the industry vulnerable to foreign competition. Major League Baseball uses a

variant of interest arbitration, in which an arbitrator chooses between the two sides' final offers, to set

the terms for contracts for players who are not eligible for free agency.

Unions and employers have also employed arbitration to resolve employee grievances arising under a

collective bargaining agreement. The Amalgamated Clothing Workers of America made arbitration a

central element of the Protocol of Peace it negotiated with garment manufacturers in the second decade

of the twentieth century. Grievance arbitration became even more popular during World War II, when

most unions had adopted a no-strike pledge. The War Labor Board, which attempted to mediate disputes

over contract terms, pressed for inclusion of grievance arbitration in collective bargaining agreements.

The Supreme Court subsequently made labor arbitration a key aspect of federal labor policy in three

cases which came to be known as the Steelworkers' Trilogy. The Court held that grievance arbitration

was a preferred dispute resolution technique and that courts could not overturn arbitrator's awards unless

the arbitrator exceeded his or her authority, engaged in fraud or corruption, or violated basic due

process.

Securities arbitration

In the United States securities industry, arbitration has long been the preferred method of resolving

disputes between brokerage firms, and between firms and their customers. The securities industry uses a

pre-dispute arbitration agreement, where the parties agree to arbitrate their disputes before any such

dispute arises. Those agreements were upheld by the United States Supreme Court in Shearson v.

MacMahon, 482 U.S. 220 (1987) and today nearly all disputes involving brokerage firms are resolved in

arbitration.

The process operates under its own rules, and is described in an article Introduction to Securities

Arbitration. Securities arbitrations are held primarily by the NASD Dispute Resolution program and the

New York Stock Exchange.

Judicial arbitration

Some state court systems have promulgated court-ordered arbitration; family law (particularly child

custody) is the most prominent example. Judicial arbitration is often merely advisory dispute resolution

technique, serving as the first step toward resolution, but not binding either side and allowing for trial de

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novo. Litigation attorneys present their side of the case to an independent teritary lawyer, who issues an

opinion on settlement. Should the parties in question decide to continue to dispute resolution process,

there can be some sanctions imposed from the initial arbitration per terms of the contract.

Proceedings

Various bodies of rules have been developed that can be used for arbitration proceedings. The two most

important are the UNCITRAL (United Nations Commission on International Trade Law) rules (Model

Law) and the ICSID rules. The rules to be followed by the arbitrator are specified by the agreement

establishing the arbitration.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Done at New York,

10 June 1958; Entered into force, 7 June 1959; 330 U.N.T.S. 38, 1959) provides for the enforcement of

foreign arbitral awards on the territory of the contracting parties. Similar provisions are contained in the

earlier Convention on the Execution of Foreign Arbitral Awards (Done at Geneva, 26 September 1927;

Entered into force, 25 July 1929; L.N.T.S. ???).

Some jurisdictions have instituted a limited grace period during which an arbitral decision may be

appealed against, but after which there can be no appeal. In the case of arbitration under international

law, a right of appeal does not in general exist, although one may be provided for by the arbitration

agreement, provided a court exists capable of hearing the appeal.

When arbitration occurs under U.S. law, either party to an arbitration may appeal from the arbitrator's

decision to a court, however the court will generally not change the arbitrator's findings of fact but will

decide only whether the arbitrator was guilty of malfeasance, or whether the arbitrator exceeded the

limits of his or her authority in the arbitral award or whether the award conflicts with positive law. The

Supreme Court has described the standard of review as one of the narrowest known to Western

jurisprudence.

Arbitrators

Arbitrators are not bound by precedent and have great leeway in such matters as active participation in

the proceedings, accepting evidence, questioning witnesses, and deciding appropriate remedies.

Arbitrators may visit sites outside the hearing room, call expert witnesses, seek out additional evidence,

decide whether the parties may be represented by legal counsel, and perform many other actions not

normally within the purview of a court. It is this great flexibility of action, combined with costs usually

far below those of traditional litigation, which makes arbitration so attractive.

Arbitrators have wide latitude in crafting remedies in the arbitral decision, with the only real limitation

being that they may not exceed the limits of their authority in their award. An example of exceeding

arbitral authority might be awarding one party to a dispute the personal automobile of the other party

when the dispute concerns the specific performance of a business-related contract.

It is open to the parties to restrict the possible awards that the abitrator can make. If this restriction

requires a straight choice between the position of one party or the position of the other, then it is known

as pendulum arbitration or final offer arbitration. It is designed to encourage the parties to moderate

their initial positions so as to make it more likely they receive a favourable decision.

No definitive statement can be made concerning the credentials or experience levels of arbitrators,

although some jurisdictions have elected to establish standards for arbitrators in certain fields. Several

independent organizations, such as the American Arbitration Association, offer arbitrator training

programs and thus in effect, credentials. Generally speaking, however, the credibility of an arbitrator

rests upon reputation, experience level in arbitrating particular issues, or expertise/experience in a

particular field. Arbitrators are generally not required to be members of the legal profession.

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To ensure effective arbitration and to increase the general credibility of the arbitral process, arbitrators

will sometimes sit as a panel, usually consisting of three arbitrators. Often the three consist of an expert

in the legal area within which the dispute falls (such as contract law in the case of a dispute over the

terms and conditions of a contract), an expert in the industry within which the dispute falls (such as the

construction industry, in the case of a dispute between a homeowner and his general contractor), and an

experienced arbitrator.

Exchange rate systems:

Exchange rate is the price of one country's currency in terms of another country's currency. Three types

of exchange rate systems are give in the following;

Fixed exchange rate system (the exchange rate is fixed)

Flexible (floating) exchange rate system (the exchange rate is determined by market forces

and changes freely)

Managed exchange rate system (the exchange rates are allowed to move only within limits -

if the exchange rate is moving out of the desired limit then central banks buy or sell the

currencies to control the exchange rate)

Pros and Cons of Fixed & Flexible Exchange-Rate Systems

Fixed and flexible exchange rate systems have their pros and cons that are listed below;

Fixed exchange-rate system

reduce riskiness of international trade

important anti-inflationary tool

wide swings in the values of key currencies can disrupt sound international investment decision

making

Flexible exchange-rate system

with BOP equilibrium, domestic policy makers can concentrate on domestic economy

represent true state of economy

Factors influencing exchange-rates:

Business in international markets are strongly affected by exchange rates of host and home countries'

currencies as well as with other exchange rates. The major factors that affect exchange rates are

discussed in the following;

Capital controls on any foreign currency would often work to increase its exchange rate as its trading

gets restricted.

Higher exchange-rate spreads (difference between buying and selling rate of a currency) allows more

flexibility to buyers and sellers to change exchange rates.

Strong balance-of-payments statistics of any country affect that country's currency to strengthen.

Higher foreign-exchange reserves of any country influence that currency of that country to appreciate

in value.

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Direction and strength of economic growth any country also affects its currency's exchange rates.

Government spending increases money in circulation and also affects growth ot certain sectors of a

country's economy and may also affect exchange rates.

Relative inflation rates (purchasing power parity - higher relative inflation leads to lower purchasing

power of currency & hence lower exchange value) also affect exchange rates with pressure on the

currency of the country with higher inflation to depreciate overtime.

Large money-supply growth increases inflation and accordingly affects the value of a country's

currency.

Interest-rate differentials (investors will arbitrage to keep exchange rates in equilibrium) also work

like the relative inflation rates in affecting the currency of a country.

Trends in exchange-rate movements also impact the direction of exchange rate movements, at-least

in near-term future.

In time of economic turmoil in the regains of the world investors move their capital in the currencies

that are strong (safe haven) and with increasing demand their exchange rates may increase.

Technical factors (i.e. seasonal, release of statistical data) also affect exchange rates in near-term.

Business implications of exchange rates:

Changes in exchange rates of international currencies impact business decisions in many ways. Some of

the common implications of changing exchange rates are discussed below;

Marketing Decisions

Changes in exchange rates affect demand for products (home & abroad)

Marketer may need to change prices of products and services

Production Decisions

Changes in exchange rates may affect production costs in various countries

Financial Decisions

Changes in exchange rates affect sourcing of funds by firms

Also affect cross-border remittances of funds

and reporting of financial results into home country accounts

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