Significance of forex management is felt in global business of every nation as it helps the consumers to effect international transactions.
Business operations in countries across the globe have been in existence for centuries, but an unprecedented growth in world wide production and distribution of a large number of capital, intermediate and consumer goods has been witnessed in the past fifty years. At present most of the countries are economically related to each other through a complex network of trade, foreign investment and international loans.
The emergence of WTO and the process of global integration has reinforced the importance of International trade, cross border financial flows and consequently foreign currency transactions. Each country has its own currency and each significance of forex management lies in the study and maintenance of the exchange levels.
Every goods or service reaching us from abroad involves forex. Hence effective management of forex is very much significant. Knowledge of the forex management can help avoid harmful effects of International events and perhaps even profit from these events. With the advent of globalization and liberalization the scope for international trade and international financing has increased tremendously. International trade has grown more quickly than trade in general. This has put up both benefits and challenges.
The principal benefit for international trade has been in the form of the gain in standard of living it has permitted. The gain has come from exploiting relative efficiency of production in different countries. The challenges of international trade are the introduction of exchange rate risk and country risk. Various methods and markets have evolved that allow firms to avoid of reduce these risks.
The after effect of development of international trade has been swift movement of funds from one finance centre to the other. There has been investment by multinationals in the third world countries in the form of capital outlays. All this has necessitated the need for a better understanding of the mechanism of forex inflows.
Significance of Forex management has become subjects of interest because of an increased globalization of financial markets. The benefits of the increased flow of capital between nations include a better international allocation of capital and greater opportunities to diversify risk. However, globalization of investment has meant new risks from exchange rates, political actions and increased interdependence of financial conditions in different countries.