FIN542 Group Assignment 1

HOW FOREIGN CURRENCY USED IN THE MARKET
Foreign exchange could range from basic currency transactions at a local bank to
currency trading on the foreign exchange market. Currency pairings, such as USD/CAD,
EUR/USD, or USD/JPY, are displayed when exchanging currencies. The US dollar (USD) is
paired to the Canadian dollar (CAD), the euro (EUR) is paired to the USD, and the US dollar
(USD) is paired to the Japanese yen (JPY). Each pair will also have a price attached to it, as
such 1.2569. For illustration, if the same value is related with that of the USD/CAD pair, it
signifies that buying one USD costs 1.2569 CAD. If the price rises to 1.3336, one USD will
cost 1.3336 CAD to purchase. The value of the US dollar has climbed, while the value of the
Canadian dollar has decreased. This is due to the fact that one CAD now costs more than
one USD.
Currency trading in the forex market is done in lots, which are categorized into micro,
mini, and normal lots. A micro lot is valued $1,000, a mini lot is valued 10,000, and a regular
lot is valued 100,000. This is not the same as going to the bank and exchanging $450 for
your vacation. Trades in the computerised forex market are made in fixed currency blocks,
although you can trade as many blocks as you like. You can exchange 7 micro lots (7,000),
3 mini lots (30,000), or 75 normal lots (7,500,000). In major financial cities across the world,
the market is open 24 hours a day, five days per week. This means you can trade currencies
at any time throughout the day. In order to conduct forex transactions, an investor can
choose from a range of diverse options.
You can always proceed via a variety of dealerships or financial centres that employ
a variety of technological networks. Trading currencies is as simple as clicking a mouse in
today's world, and access to information is not even a problem, therefore everyone could do
it. Numerous financial institutions allow anyone to create accounts and exchange currencies
anytime and wherever they desire. Whenever people trade in the forex market, they are
essentially buying or selling a certain country 's currency. However, there would be no actual
transfer of funds between one person to the other. This is the polar opposite of what
happens in a currency exchange facility. Consider a traveller from Japan visiting Times
Square in New York City. They may be physically turning their yen into genuine US dollar
currency, for which they may be paid a commission fee. As a result, people can spend their
money while travelling.
In the realm of online platforms, however, traders often take a position in a certain
currency in the hopes of profiting from upward movement and strength in the currency
they're purchasing or weakness in the currency they're selling.Foreign currency and other
markets have several distinctive features. To begin with, there are fewer regulations, which
means that investors are not subjected to the same rigid standards and regulations as those
in the stock, futures, or options markets. This implies that Foreign currency market is not
regulated by clearing houses or central organisations. Secondly, because transactions are
not conducted on a typical exchange, users will not be charged the same costs or charges
as you could on a different market. Furthermore, there is no time limit on when you may and
cannot trade.
You may trade at any time of day because the market is open 24 hours a day.
Finally, because it was such a liquid market, you may come and go as you choose and
purchase as much profits as you desire.
HOW DO MNC FROM MALAYSIA COPE WITH THE FOREIGN CURRENCY
FLUCTUATIONS
Currency fluctuations are caused by the floating exchange rate system, which is used
by the majority of large organizations. Currency exchange rates against other currencies are
determined by a variety of variables such as relative supply and demand for currencies,
country economic development, inflation expectations, capital movements, and so on.
Currency fluctuations are caused by several variables, which are always changing. The
fluctuations of a country's currency may have a significant influence on the country's
economy and commercial operations. This means that whether a country's currency rises or
depreciates, the impact on the economy will be both good and negative, depending on the
industry. In plain language, fluctuation is the abnormal rise and fall of a value or amount of
currency.
Currency fluctuations, for example, may be observed in global commerce. In general,

a weaker currency encourages exports while making imports more costly, reducing the
country's trade imbalance depending on the industry. A strong currency, on the other hand,
might limit exports while making imports cheaper, thereby expanding the trade imbalance.
While it is commonly considered that a strong currency is beneficial to a country's economy,
this may not be the case. Over time, an unjustifiably strong currency may be a drag on the
economy, rendering entire industries uncompetitive and resulting in the loss of thousands of
jobs. As this occurs internationally, it will have an impact on Malaysia, particularly
multinational corporations (MNCs) based in the country. However, Malaysian multinational
corporations are not allowing this issue to have a significant influence on their operations.
As a result, they will employ an approach that will assist them in properly coping with
foreign currency fluctuations. Among the methods is constant monitoring is required.
Analyze the foreign currency balance sheet situations on a regular basis and adjust changes
in the expected foreign currency cash flows by subsidiary. Examine monthly income
statements to confirm that foreign currency profits and losses are acceptable in light of
known exposures and derivative contracts. If they are not, it is possible that a foreign
currency risk has altered or has not been discovered, necessitating more inquiry.
Furthermore, The second approach is to devise a plan for managing consolidated exposure.
Consider forward agreements in conjunction with currency swaps to sell one

currency for another while simultaneously agreeing to exchange the same currencies at a
specified time in the future to significantly offset the Profit and loss effects of changes in
currency rates when the balance sheet positions are remeasured. The third way is to
calculate each subsidiary's expected yearly foreign currency cash flows. Estimate the total
receipts and payments made by each subsidiary in each currency over the next 12 months,
or longer if possible. To calculate the company's overall yearly net expected foreign currency
cash flows, add the total estimated revenues and payables in foreign currency other than the
functional currency of each subsidiary by month. The fourth way is to prepare a
consolidation of all foreign currency assets and liabilities of all subsidiaries.
Several of the foreign currency balance sheet exposure should be naturally offset or
netted as a result of the consolidation. The remaining net consolidated balance sheet
positions in foreign currency should indicate the exposure that will be remeasured as a result
of changes in foreign exchange rates, with the resulting impacts recognised in the income
statement. Finally, the final option is to create a foreign currency policy and process. This
can be done by ensuring the company includes the company's foreign exchange set
objectives, the types of alternatives that may be used, and the employees authorised to
execute trades.
References
Chen, J. (2021, 10 30). Foreign Exchange (Forex) Definition. Investopedia. Retrieved
December 20, 2021, from https://www.investopedia.com/terms/f/foreign-
exchange.asp
HEYE, P. (2011, March 31). How to Manage Fluctuations in Foreign Currency Rates.
Journal of Accountancy. Retrieved December 21, 2021, from
https://www.journalofaccountancy.com/issues/2011/apr/20113755.html
Xpress Money. (2019, September 11). The Impact of Currency Fluctuations. Xpress
Money. Retrieved December 21, 2021, from
https://www.xpressmoney.com/blog/industry/the-impact-of-currency-fluctuations/

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HOW FOREIGN CURRENCY USED IN THE MARKET

Currency fluctuations, for example, may be observed in global commerce. In general,

Consider forward agreements in conjunction with currency swaps to sell one

Chen, J. (2021, 10 30). Foreign Exchange (Forex) Definition. Investopedia. Retrieved

December 20, 2021, from https://www.investopedia.com/terms/f/foreign-

Journal of Accountancy. Retrieved December 21, 2021, from

Money. Retrieved December 21, 2021, from

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