Questions2 Essay Example | Topics and Well Written Essays - 1000 words

Questions2 - Essay Example However, it opens room for unscrupulous short term currency traders with the aim of inflating the conversion rate for personal gains. Such challenges may lead to losses for businesses operating in countries with a weak currency thus allowing for the monopoly. The short term financial selling can be reduced by financial market players with the ability to control the currency conversion rates based on the globally agreed rates and competition. The foreign exchange and financial market are vital in improving business efficiency because they affect the revenue and expenditure of business in relation to the exchange rates (Mendleson, 2012, p. 123). Efficiency is improved when the foreign exchange market is stable leading to price stability in the product and service market. The success of businesses globally depends heavily on the foreign exchange market. Therefore, the foreign exchange market is vital in the global success of businesses because it affects revenue and expenditure. The suc cess of foreign exchange market is revealed on the global success of the businesses based on other factors affecting globalization. The currency conversion rate is a vital factor in international business operations. Question three Currency crisis and the default crisis are related especially in the developing country. Normally, the currency crisis precedes the default crisis indicating the relationship between the two crises. The sudden drop in the exchange rate of a currency leads to serious challenge in the financial market which in turn affects the business operations in the country. In order to avert currency conversion crisis, countries must ensure that then conversion rates are maintained at a stable price which increases trust in the currency and improves the development of the necessary capital stability. In order to avert a currency conversion crisis, the country must evaluate it paper money value and maintain at a stable equilibrium (Boone & Kurtz, 2011, p. 96). Industria l countries tend to ignore the impact of the global currency conversion rate, which in turn affects their performance globally. Countries must engage in the global currency trade and ensure that the stability of the local currency is achieved. The achievement of currency conversion stability will avert default crisis and ensure success in the global market. The use of sovereign credit rating will improve the stability in the currency conversion rates which in turn leads to reduction of currency crisis. Sovereign credit rating plays an integral role in the determination of the extent to which countries have access to the international capital markets (Sorrells, 2012, p. 115). However, changes in the sovereign credit rating should not be viewed as the indicator of the existence or future occurrence of a currency crisis. In conclusion, default crisis can be averted by controlling currency crisis. Question five The derivatives market is a financial market based on derivative factors and financial instruments. These instruments include future contracts or options obtained from other forms of assets. The market is divided in to two namely exchange-traded derivatives and over-the-counter derivatives. Tailor-made derivatives cannot be traded on the future exchange market but are traded on Over-the-counter markets. They consist of investment banks with clients such as the hedge funds, government