er this point, we can see how important the exchange is. For example, if the yearly international sales are $10 million US dollars and if the exporter wants to convert US dollars into AUS dollars, he/she may need to hedge for himself/herself. If the exporter can buy a forward contract in a year time at SUS/AUS=0.6138 in 1 January 1999, he/she will receive $AUS16.3 million dollars in 1 January 2000. However, if the exporter does not do anything about it, the exchange rate is SUS/AUS=0.6583 and he/she will only receive $AUS15.2 million dollars. There is a large difference between those two strategies about $AUS1.1 million dollars. Thus, we can how large the difference is.However, there are still many other effects to affect the exchange rates such as: Economic conditions Government policiesEconomic ConditionsA country’s economic condition has a great effect on the exchange rate such as inflation rate, interest rate. From theory, it can be observed in the covered interest parity, uncovered interest parity and purchasing power parity. We all know that at a booming period, the exchange rate should appreciate that is bad to exporters and at a recession period, the exchange rate should be depreciate that is bad to importers. However, the following case is to illustrate that when the exchange is depreciating, there is no advantage to either exporters or importers.Financial CrisisFinancial crises can take various forms. It can be individual crisis, multiple countries crisis and global recession. Some examples are: A purely speculative attack on a fixed exchange rate (such as New Zealand in 1984) A stock market and property collapse which leads to banking problems and eventually bankruptcies and a slowdown or prolonged recession in the economy (The Great Depression of 1930’s) International financial crisis in which a crisis in one country spreads across multiple countries (the Asian Fi...
