BUS FPX 4016 Assessment 3

Introduction

Numerous products that are being sold in the United States are derived from other nations, and this is the origin of the concept of exchange rates. This essay revolves around its influence on the Japanese yen and markets Japanese goods in the United States.

Analysis of Exchange Rate Influence

The prevailing exchange rate of Japanese yen to US dollar reflects the relative weakness of the yen; it is equal to $0.0095 with 1 yen, and 1 US dollar (Japanese Yen Currency B) will cost 105.62 yen. Consequently, importation of goods from Japan becomes cheaper than locally produced counterparts, allowing firms to earn adequate benefits by exporting these goods to the United States.

Effects of Exchange Rate Changes on Export Profitability

Exchange rate rift is a threat to profitability when exporting products to the United States. Even minor fluctuations can significantly impact costs. For instance, if the yen strengthens, firms can raise costs, leading to the surplus. On the other hand, a weak yen can enhance profitability, as costs fall. To minimize these risks, many companies opt to drive transactions in only a stable currency like the US dollar, thus limiting the risk of exchange rates (International Trade Association, ND).

BUS FPX 4016 Assessment 3 Currency Exchange Risks 

Identification of Management Risks

The management of foreign exports faces varying risks, primarily with fluctuation in the exchange rate. Specifically, the inflation of Japan can upset the substantial devaluation of the yen, leading to a shortage of production and lowering the supply of Japanese goods for US markets (Chains, 2020). Besides, a declining US dollar threatens US businesses, which may disrupt their capacity to dispose of loans or to bear imported goods, thereby impacting profitability (Chain, 2020).