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business level 3 unit 39 P4
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Unit 39 P4Describe how the monetary environment afects businesses that operate internatonally. P4
Foreign exchange system
A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority
with respect to a foreign currency or a basket of foreign currencies. However a free foatng
exchange rate is determined in foreign exchange markets depending on demand and supply, and it
generally fuctuates constantly and UK has a free foatng exchange rate. Due to the fact that UK has
free foatng exchange rate, it impacts Jaguar negatvely and positvely. For example, free foatng
exchange rate afects the import and export, if the Britsh pound appreciates then importng raw
material to the UK will be cheaper which means Jaguar will be able to make more revenue as the
overall price of the car will be cheaper. This form of revenue will mostly come from Jaguar’s host
country because the price of cars will be cheaper. However if the pound appreciate then this can
afect the export as it will cost more for foreign buyers which means demand for goods and services
will decrease. As a result revenue will decrease; this is a negatve impact to Jaguar because 70% of
their customers are foreign. In contrast, if pound depreciates then it will increase importng raw
materials will be more expensive for Jaguar and as a result will be more expensive to produce
cheaper cars, revenue and sales from Jaguar’s host country will significantly decrease due to the
increase in price. However depreciaton of pound means that export will be cheaper for foreign
buyers which mean demand for goods and services will increase. As a result revenue will decrease;
this is a positve impact to Jaguar because 70% of their customers are foreign.
Eurozone
Eurozone is 19 of the 28 European Union member states which have adopted the euro as their
common currency and sole tender, the other 9 member of the country contnues to use the same
currency. Business like Jaguar would want to the join the Eurozone because there would be no
exchange rate, being in the euro would reduce the risk of currency fuctuaton. This means Jaguar
will be able to plan their cost and revenue more easily; it would be easier for Jaguar to trade as the
price would stay the same and due to the fact that prices would stay the same Jaguar will be able to
predict the future sales of their business. One of the problem that Jaguar will face when trading with
countries using another currency is that exchange rate are changed on a daily basis making it hard
for jaguar to predict how much their supply will cost. For example, Jaguar trade their goods and
service regularly because Jaguar is an internatonally operated business, a price that Jaguar agree on
with their suppliers could increase or decrease if the exchange rate changes therefore making it hard
to predict and Jaguar could easily lose suppliers if the amount paid to them is too less according to
the exchange rate. Furthermore, it is difcult for jaguar to predict the rise and fall of export demand,
this is due to the foreign currency and the exchange rate. The price of the goods from foreign view
changes as well in a daily basis due to change in exchange rate, demand may decrease if the price of
the good increase in foreign countries.
Internatonal banking
Banking is now internatonal in a sense where business can now business bank from across the globe
so they can ship for good interest rate. There is various advantage of internatonal banking. For
example, business like Jaguar has large revenue and this means that Jaguar can choose banking
systems that suits them; this may include high banking interest rate which Jaguar can benefit from as
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