How an Exchange Rate Affects a Business

by Neil Kokemuller; Updated September 26, 2017
Exchange rates can have a strong impact on global businesses.

Exchange rates have a significant effect on companies that do business globally. When companies exchange products or services across borders causing two or more currencies to become involved, fluctuation in exchange rates can lead to gains or losses for the business.

Export Prices

When a U.S. company sells goods or services abroad, it typically requires payment in U.S. dollars. The foreign entity would change its currency into dollars to make payment. The buyer is at an advantage when its currency is relatively strong against the dollar, and is at a disadvantage if its currency is weak.

Import Prices

When an American company imports materials, or buys goods or services from a foreign vendor, it would usually be expected to convert dollars into the foreign currency to make payment. When the dollar is relatively strong, the advantage is to the buyer; when the dollar is weak, the buyer is at a disadvantage.

Price Competition

Price competition can be affected for a U.S. company in the home market if a foreign competitor realizes an increase or decrease in exchange rate for its currency. Foreign competitors might raise or lower prices in the U.S. market depending on gain or loss for exchange rate changes.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

Photo Credits

  • Foreign Currency image by Stephanie Mueller from Fotolia.com