International Finance Essay Example | Topics and Well Written Essays - 750 words - 1

International Finance - Essay Example However, there is no guarantee that it will limit the risks of foreign currency exchange. Therefore, losses or gains in the exchange of currency will impact on cash flows through reduced growth in global operations. Exchange rate movements as it causes changes in the value of the local currency of revenues subject to foreign currency. However, if parity in purchasing power is desecrated, risks of exchange rates will affect both multinational firms and other firm with no direct link to international trade activities. This is because some local firms which import capital goods encounter asset pricings affected by exposure to exchange rates in the global capital market (Sinclair, 2005). In that case, cost of goods and services will be subject to original cost of capital and this will have an impact on the cash flows. Firms involved with international trade may overlook the country’s imports and exports in a foreign currency. As a result, this will change the value in assesment to domestic currency’s value (Dechow et al, 1999). This then will affect the pricing of domestic goods and services rendering it subject to international market prices dertemination. Anticipated cash flows of firms can be affected by exchange rates movements as it leads to shift in stock prices and returns. In the case of domestic firms, change in value of currency has an impact on the firms ability to import capital goods. Rise in the value of currency will put the domestic firms at a better position to acquire inputs from international market (Beenhakker, 2001). However, low value of currency makes it difficult to acqure capital goods from foreign countries. In that case, the cash flows to the firms will be subject to the inputs of the firm. Adequate invest of inputs will amount to increased cash flows while decreased cash flow results from low inputs. Acquisition of modern technology is determined by the rate of cash flows of firms. However, exposure exchange rates movements