International Business: The New Realities, 5th Edition

Currency Risk

Today, 19 member states of the European Union have adopted the euro as their common currency and sole legal tender. The countries’ use of the euro eliminates the problem of exchange rate fluctuations in trade and investment with each other. Other countries in Latin America, the Caribbean, and the Middle East have opted to use a regional or hard currency. The challenges posed by fluctuating exchange rates motivate countries to coordinate their monetary policies. Governments attempt to manage exchange rates by buying and selling hard currencies and by keeping inflation under control. However, the foreign exchange market is huge, and it shifts very quickly. Even major governments have difficulty controlling exchange rate movements. ...