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I came across a possible TC interview question "explain currency exchange rates" - would you mind providing a little guidance/help on how to answer this?
That's a weird question but isn't it just asking what exchange rates are? Which would be the value of one currency compared to another currency. I assume they would then ask a commercial question which links to it?
Not sure either - found it on glassdoor under the firm I’ll be interviewing at and was curious whether anyone else had it - i am guessing that just giving a definition of exchange rates wouldn’t be enough though?
Perhaps focus on a specific company that the firm works with. Let's say said firm works for a global company like Google.
I would start off by giving a basic definition of what currency exchange rates (XR) are and possibly explain what foreign exchange rates are as there is an over link there. From here, I would consider the implications that inflation and interest rates have/may have on XR and how this affects or benefits a global company like Google. At present, Google has a HQ in the UK and the US. Let's assume Sterling is up against the Dollar due to uncertainty in the US caused by political decisions (protectionist laws, tax reform, trade rules etc). Many international company's who operate in the UK will likely opt to cash out their profits in sterling as oppose to the dollar as they will likely receive more.
Ultimately, I think XR depends on the activities relating to trade in a specific country. If trade is high, then demand for that countries currency will be high. If trade is uncertain and on the decline, then the demand for that countries currency will likely be low. Essentially, it makes commercial sense for companies and investors to trade or do business in a country that has a steady currency, or alternatively trade in a currency that is steady despite being HQ'ed elsewhere. For example, most U.S firms operating in the U.K. pay their lawyers in dollars as oppose to the pound sterling. At present, this is beneficial as the dollar is, I think, up against the pound.
I would start off by giving a basic definition of what currency exchange rates (XR) are and possibly explain what foreign exchange rates are as there is an over link there. From here, I would consider the implications that inflation and interest rates have/may have on XR and how this affects or benefits a global company like Google. At present, Google has a HQ in the UK and the US. Let's assume Sterling is up against the Dollar due to uncertainty in the US caused by political decisions (protectionist laws, tax reform, trade rules etc). Many international company's who operate in the UK will likely opt to cash out their profits in sterling as oppose to the dollar as they will likely receive more.
Ultimately, I think XR depends on the activities relating to trade in a specific country. If trade is high, then demand for that countries currency will be high. If trade is uncertain and on the decline, then the demand for that countries currency will likely be low. Essentially, it makes commercial sense for companies and investors to trade or do business in a country that has a steady currency, or alternatively trade in a currency that is steady despite being HQ'ed elsewhere. For example, most U.S firms operating in the U.K. pay their lawyers in dollars as oppose to the pound sterling. At present, this is beneficial as the dollar is, I think, up against the pound.
