Foreign Exchange Exists Through Corporate Interest
It is not unusual to see tourists around. You have perhaps seen them do an exchange of their foreign money to local currency. Such action is a very basic foreign exchange. You are also already engaged in foreign exchange when you buy imported goods at the nearby grocery store or at the department store.
Additionally, foreign exchange is not limited to direct purchase of products imported from abroad. You might not be buying imported goods but the local brand may have assembled or bought the raw materials somewhere outside the country and that still counts under foreign exchange.
For example, the car you purchased may be an American brand but it was assembled in Mexico or Canada and so the price of that car is influenced by foreign exchange rates. Check your iPod, it may be assembled in China but parts of it are made in California.
In this article we will read about how corporations got into foreign exchange and why they are into it.
Internationalization of business has been quoted as one factor that increased foreign exchange volume. After World War II when economic aids were handed over to war-ravaged countries, their determination to rebuild shattered communities have resulted to steady economies. New companies are being built and it resulted to stiff competition among other rising corporations.
The solution seen by companies was to seek out new markets and seek out cheap raw materials and labor. American industries were having industrial plants in Asia and in other parts of the world were labor is skilled and cheap.
These labor and materials have to be paid and so there was a flow of foreign money. And the profits from these new markets have to be converted to the company's currency. And so foreign exchange was born.
Companies who import or export goods buy them in one currency and sell them in another. That also means that they pay out money through foreign currency trading to their laborers and managers.
The first impression of companies over foreign exchange was that it was an added cost. Foreign exchange rates are volatile. Corporations were thinking that a successful product overseas will be pulled down by adverse foreign exchange condition. However, that was just all speculation for quite another thing happened: proper handling of foreign exchange enhances overall international performance of product or service. The proper thinking of investors should not what you pay for foreign exchange but what foreign exchange can give you.
The high profitability of foreign exchange made companies comfortable with foreign exchange. But before companies knew of the actual gain of engaging in foreign exchange, they were thinking foreign exchange would be an added cost to the company and so they minimized trading overseas. And since those times demanded new markets and cheap materials and labor so some frail companies have to look into Asia and the Pacific. Those who did establish industrial plants in Indonesia or the Philippines did not regret so for the returns were good, very good in fact.