NattuJ Posted December 3, 2011 Report Share Posted December 3, 2011 Hello All,My Economics supervisor has assigned this Extended Essay topic to me - 'To what extent do exchange rate fluctuations affect Company X, an export-import firm in India? I am not sure which Economic Theory to apply to this topic. Can anyone of you guys please help? I am sure the theory would come from International Economics but would there be any specific theory/ies from this section applied to this topic?Thanks in advance.Nattu Reply Link to post Share on other sites More sharing options...
dessskris Posted December 4, 2011 Report Share Posted December 4, 2011 well talk about exchange rate? lol. there are lots you could talk about. exports and imports for sure, balance of payment, aggregate demand. there are lots. just look at the syllabus and you'll see which chapters you can relate it to. Reply Link to post Share on other sites More sharing options...
NattuJ Posted December 4, 2011 Author Report Share Posted December 4, 2011 well talk about exchange rate? lol. there are lots you could talk about. exports and imports for sure, balance of payment, aggregate demand. there are lots. just look at the syllabus and you'll see which chapters you can relate it to. But exchange rate concept would be relative to a country not to a firm right? I am a little confused on how the fluctuations would have an impact on an export import firm. I mean, which Economics concept can I apply for a "firm". That is what is troubling me. Please help. Reply Link to post Share on other sites More sharing options...
El Che Posted December 4, 2011 Report Share Posted December 4, 2011 But exchange rate concept would be relative to a country not to a firm right? I am a little confused on how the fluctuations would have an impact on an export import firm. I mean, which Economics concept can I apply for a "firm". That is what is troubling me. Please help.Well, not exactly. Exchange rates affect firms as well, especially if they are, as you say, "export-import" firms. Think about it. I'll give you an example using € and $. Let's say demand for $ increase due to various reasons, such as changes in taste or changes in income. This means an increase in the supply of € as more Euros will be given up in order to buy more dollars. In this case both demand for $ and supply of € shift rightwards from their equilibrium position. Demand shifting to the right indicates there is a rise in the value of dollars with regard to Euros. This creates a new equilibrium exchange rate, higher than the previous one. Under these conditions more Euros will be given up to buy one dollar. For instance, if previously this could be done with 0.70 Euros, the new equilibrium will make it 0.79 Euros equal to 1 dollar. In other words, dollar appreciates while Euro depreciates (ceteris paribus). You may wonder what the significance of this long explanation is. Well, here you go. A country with an appreciating currency will be likely to experience lower exports and increased imports, while a country with a depreciating currency will be likely to have increased exports and lower imports. Applying this to firms, when the currency of a country appreciates, the firms (like Company X) will export less and import more, and vice versa.I hope it helps. If not, ask me for further clarification. Good luck! 1 Reply Link to post Share on other sites More sharing options...
NattuJ Posted December 4, 2011 Author Report Share Posted December 4, 2011 @ El Che. Really appreciate your response :-) Understood your point. My only concern is, that the demand and supply curve of the currency you explained, can't we make a similar demand and supply curve for company X's products impacted by fluctuations in the currency?In other words, I could not find a demand-supply curve for a firm, the demand curve shifting rightwards or leftwards due to an appreciation or a depriciation in currency. I hope you understood what I mean to say.Thanks so much once again. Reply Link to post Share on other sites More sharing options...
dessskris Posted December 4, 2011 Report Share Posted December 4, 2011 no, but now if your country's currency depreciates/appreciates, your company will be affected. if it depreciates, your export will increase, your company will export more. vice versa. Reply Link to post Share on other sites More sharing options...
NattuJ Posted December 4, 2011 Author Report Share Posted December 4, 2011 no, but now if your country's currency depreciates/appreciates, your company will be affected. if it depreciates, your export will increase, your company will export more. vice versa.I completely agree with you @Desy. But can we show this on a demand-supply curve that my company will export more or less if the currency appreciates or depreciates? Please try to understand my question. I am trying to plot a demand supply curve for company X's products in case of a currency appreciation and depreciation. Reply Link to post Share on other sites More sharing options...
dessskris Posted December 4, 2011 Report Share Posted December 4, 2011 oh, right you can show it in the diagram but it's difficult (if not impossible) to know exactly by how much the demand has changed Reply Link to post Share on other sites More sharing options...
NattuJ Posted December 4, 2011 Author Report Share Posted December 4, 2011 (edited) oh, right you can show it in the diagram but it's difficult (if not impossible) to know exactly by how much the demand has changedyes and the problem is - I could not find such graph with the corresponding theory anywhere on internet leave alone our text book. So I am really doubtful if we can make a graph out of it? Do you know any good internet source from where I can find such information? Thanks Edited December 4, 2011 by NattuJ Reply Link to post Share on other sites More sharing options...
dessskris Posted December 4, 2011 Report Share Posted December 4, 2011 why do you need it to have been explained somewhere else? isn't that just common sense? if you're unsure about simple things like this, are you sure you can write an EE on economics? Reply Link to post Share on other sites More sharing options...
El Che Posted December 4, 2011 Report Share Posted December 4, 2011 (edited) Did you consult that with your teacher? Though I'm not sure but you might use typical supply-demand graph with S and D curves being a little "curved" (like the ones attached in the image). I suppose you couldn't find any percentages with regard to this company's D/S? It would have been way easier if there had been percentages. Edited December 4, 2011 by El Che Reply Link to post Share on other sites More sharing options...
NattuJ Posted December 4, 2011 Author Report Share Posted December 4, 2011 why do you need it to have been explained somewhere else? isn't that just common sense? if you're unsure about simple things like this, are you sure you can write an EE on economics? Thanks for the motivation You would make for a great IB teacher one day Did you consult that with your teacher? Though I'm not sure but you might use typical supply-demand graph with S and D curves being a little "curved" (like the ones attached in the image). I suppose you couldn't find any percentages with regard to this company's D/S? It would have been way easier if there had been percentages. @El Che - Thanks for taking the pains to draw a graph. I really really appreciate it. I would now take yours and Desy's inputs and discuss them with my supervisor. Once again - I really appreciate your help. Reply Link to post Share on other sites More sharing options...
CharityA Posted January 29, 2021 Report Share Posted January 29, 2021 can isee your extended essay if you finished it? Reply Link to post Share on other sites More sharing options...
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