Explain how money can be made—and lost—in the foreign exchange (FX) markets.

The foreign exchange (FX) markets are worldwide and collectively involve more money than any other market. On most days, you can trade money 24 hours somewhere in the world. As a result, there are ample opportunities for buying and selling foreign currency. Making or losing money in these markets depends on exchange rate movements.

Understand FX quotations, including cross rates.

FX information can be found in financial publications such as The Wall Street Journal, the Financial Times, and the financial section of major newspapers. The Wall Street Journal lists major currencies in terms of their trades with the US$. The spot rate (for delivery in two business days) is reported for all currencies. For the more heavily traded currencies, 30-, 60-, and 90-day forward rates are reported. Cross rates are exchange rates for trading directly between non-US$ currencies.

Describe currency exchange controls.

Many developing countries have instituted a system of currency exchange controls, which restrict the use of local and foreign currencies. Developing countries often have far less hard (convertible) currency than they need. They therefore ration the hard currency. Anyone wanting hard currency may have to apply to a government agency, specifying how much is wanted and the use to which it will be put.

Explain how financial forces such as tariffs, taxes, inflation, and the balance of payments affect international management.

Business managers must be prepared to react to financial forces that can affect their business. Tariffs are an added cost that, because they are changing, are not always predictable. Taxes also increase costs, but they tend to be more predictable in the short term. Inflation may impact where capital is sourced as well as the cost of doing business. The balance of payments may impact the ability to move funds. In general, the effects of these forces tend to increase costs or constrain the movement of funds.