How do exchange rates affect businesses ?

The fluctuation in the global exchange rates can have a huge impact on businesses. It is necessary to know the reasons for the change in rates. If the rates are increasing due to higher labour productivity – it is considered a positive increase. 

If there is appreciation due to the weakness of other partner countries, then the firm faces low competitiveness where it has no relation to productivity.

There can be conditions when depreciation causes inflation. If inflation occurs, higher costs can create uncertainty. Many firms use the fixed-rate method for conducting business to reduce the impact of change in rate on everyday activities. 

Sometimes, the prices are predetermined for a year or more. There are other options like future options, which can be used to restrict the impact of extreme fluctuation in exchange rates on business.