Exchanging Rate Holds as an Important Part of Business Working - Assignment Example

1. Exchange rate holds an important part of business working in the global arena and has an influence on their working style as the financials of the company are affected due to it. The exchange rate of Malaysia Ringgit has seen fluctuations as compared to the Dollars which shows that the market demand and supply has determined the price. It has been identified that at peak time especially during times where there is a festival or increase in tourist to Malaysia the currency Ringgit gains against dollars whereas the other time it seems to loose. The fluctuations have some concerns for AirAsia as the changes in the value of the currency has an effect on the number of travelers booking tickets over their airlines. Since, AirAsia is a low cost airline and people look towards ensuring that the price charged by the airline is low and with the growth in low cost airline it is imperative that the prices are low. This is instead having an effect on the performance as it has made the airlines loose customers and the fluctuations in the price has made it difficult to determine the exact price. Despite it the fluctuations are not very high which thereby has limited the impact on the airlines and requires that the airlines look to deal with the issue as it will ensure that the outside customers are able to get the tickets at a lower price as the dollar is expensive in comparison to Ringgit which will thereby ensure that the price charged by them remains lower especially for tourist who have their currency in dollars. This will thereby ensure that the company will be able to use the opportunity for improving their business in the future. Thus, the fluctuations in the exchange rate had an effect on the business outcome of Malaysia. 2. The law of price states that each and every player supplying similar products has to look towards selling the products at the same price. This will increase the complexities for AirAsia as it will become difficult for the airlines to distinguish themselves based on price. The fact that other airlines will look towards charging the same price will make service a priority based on which the services will be differentiated. This will thereby make it imperative that AirAsia looks towards improving their quality of service and will have to differentiate them based on it. This will also have an impact on the price as it will make the airlines to charge a higher price as better services will require higher price and will thereby have an impact on the business of AirAsia and will result in moving from their core strength which is to provide people with airlines services at a lower price (Colell, Winston, Michael & Jerry, 1995). This will thereby have an impact on the performance of AirAsia and will require special strategies to be able to differentiate themselves. 3. Converting the price of a dollar into different currency requires strategies to be able to develop ways to deal with it. The price of one dollar is 100 yen which states that when a person converts 1 dollar in Tokyo the person will get 100 yen. Considering the fact that the actual exchange rate is 1 dollar is 130 yen which means that converting the money into yen will be beneficial as it would mean that the person gets 130 yen instead of 100 yen which means an income of 30 yen. This will make more and more people look into converting dollar into yen which will slowly increase the supply of yen and will thereby result in achieving equilibrium somewhere between 100 and 130. This would mean that in the near future the prices of yen and dollar will change in the exchange market and will make people look towards using different strategies to preserve their currency and in ensuring that from the entire transaction the business is able to gain and the person is able to ensure a long term sustainable advantage for the future (Garg, 2010). This will thereby lead towards bringing widespread changes in the manner business is being conducted and will result in changes through which the entire business situation undergoes some changes. 4. Money supply, inflation and exchange rate are important components for companies which are into international transactions and the importance of it increases in case of AirAsia as the airline is a low cost provider and looks towards attracting people so that they use the airlines for commuting. Increase in the money supply will ensure that the spending power of people improves which will make people use the services of airlines more in comparison to other forms of communication. This will also make certain section of the society which was unable to use airlines services to look towards this mode as the money supply increases. If along with it the country witnesses’ inflation then the value of the current depreciates and things becomes expensive. This will translate into increased fares which will make it difficult for the low cost carrier to ensure that the same volume of people flows and will result in a decrease in the number of people using the services of airlines. In addition to it changes in the exchange rate has a bearing on the international visitors and tourist as Malaysia look towards attracting a lot of tourist. An increase in the value of the currency through an increase in the exchange rate will make the visitors and the tourist to look towards some other destination and also make them use different mode of communication. This will have an effect on the number of people visiting the country. Thus, the business of AirAsia is affected by the changes in the money supply; inflation and exchange rate which the company needs to watch out and plan strategies keeping those in mind. 5. The exchange rate which is prevalent in Malaysia is a fluctuating exchange rate where the market determines the value of the currency by matching the demand and supply of the currency against other currency. Using this method has ensured that the true value of currency is being demonstrated and has helped to ensure that it matches with the fluctuating exchange rate which other countries uses. This has thereby enabled AirAsia it ensure that they are able to get the rate of their airlines in comparison with other currency like the Indian Rupees and allows the customers to compare the rate with their airlines which looks to provide services in Malaysia. This ensures that the customers based on their comparison are able to choose the airlines which offers the minimum rate and also helps to determine the correct and actual prices of the tickets. The drawback under this system for AirAsia is that it has made it difficult for them to arrive at a final price as the fluctuation makes the rate to change which thereby makes it difficult for the company to give the exact price of the product (Dohring, 2008). Instead the company has to give a range and since the currency rate fluctuates it becomes difficult to arrive at the correct rate until and unless the tickets are booked. Despite the disadvantage fluctuating exchange rate is better as it facilitates comparison and helps to ensure that the customers pays the correct rate according to the prevailing market demand and supply of currency. 6. AirAsia has been able to gain certain advantages through the creation of Euro as a currency because it ensures that the entire region has the same currency rate which makes the exchange rate for the entire region to be the same. This ensures that there are no fluctuations in the price of one European region to the other and ensures that AirAsia is able to ensure consistency in the prices. This will help AirAsia to ensure that the consumer using the services of the airlines has to pay the same exchange rate and the fare is totally determined on the distance travelled. This thereby ensures universal rate to prevail all over. The only disadvantage is that there could be some regions which have gained as their value of currency has appreciated due to a single currency which would otherwise have ensured that AirAsia is able to get better fares from those regions. Despite it having a single currency has ensured that the business opportunities improve for AirAsia as the fluctuations have been dealt and will ensure consistent pricing for the entire region. 7. The financial crisis of 2007-08 had an impact on the business of AirAsia. This was entirely due to the fact that airlines are still considered as a luxurious product which is used by the wealthy. The economic crisis made people postpone their consumption of luxurious products. The big and powerful organizations were also witnessing slumps due to which their staff had to postpone the use of airlines which thereby reduced the number of commuters. In addition to it AirAsia was strongly hit by the fact that the number of visitors and tourist to the country reduced drastically which had an impact on the airlines. This resulted in many vacant seats and despite offering seats at very low prices there were hardly any takers (Ernest, 2009). This had an effect on the overall business of AirAsia and created a situation where dealing with the operational expenses was difficult. The crisis has an immense impact and resulted in reducing the business opportunities and made it difficult for AirAsia to function smoothly resulting in the cancellation of many airlines which were not occupied and had an impact on the financials of the company. 8. The Euro crisis of 2011 had an impact on the business of AirAsia. This was entirely due to the fact that airlines are still considered as a luxurious product which is used by the wealthy. The economic crisis made people postpone their consumption of luxurious products especially from people belonging to the European region. The big and powerful organizations were also witnessing slumps due to which their staff had to postpone the use of airlines which thereby reduced the number of commuters. In addition to it AirAsia was strongly hit by the fact that the number of visitors and tourist to the country reduced drastically which had an impact on the airlines as the company has a huge flow of people coming from the European region. This resulted in many vacant seats and despite offering seats at very low prices there were hardly any takers. This had an effect on the overall business of AirAsia and created a situation where dealing with the operational expenses was difficult. The crisis has an immense impact and resulted in reducing the business opportunities and made it difficult for AirAsia to function smoothly resulting in the cancellation of many airlines which were not occupied and had an impact on the financials of the company. 9. Inflation reduces the purchasing power of money which thereby has an impact on the overall manner in which an organization works as increase in the inflation rate results in a decrease in purchasing power of money. This requires active participation from the government so that inflation is controlled and the business is able to gain efficiency. This will require that the government looks towards controlling the money in the economy and looks towards achieving a balance so that a balance is achieved between demand and the amount of money supply. This will also require that government absorbs the extra money in the system through the issue of bonds. This will have a positive impact on AirAsia as it will ensure that the airline gets the correct fare. This will help AirAsia to be able to ensure that the fare charged by them is not inflated and represents the correct purchasing power and will have a positive effect on the long term prospect of the company. 10. Changes in interest rate have an effect on the performance of business as when interest rate rises people will look towards investing in different investment opportunities which provides a higher rate of return. This will thereby translate into a situation where the different section of the society will look towards postponing their consumption of luxurious activities like flying. This will thereby have an effect on the number of people using AirAsia. It will result in a sharp drop in the number of commuters as certain section of the society will completely ignore the activity and look towards investing. The opposite also holds true in case when the interest rate falls. Thus, the changes in interest rates have an effect on the performance of AirAsia and will provide different results in different situations. 11. Changes in the exchange rate will have an effect on the performance and business of AirAsia as the airlines have passenger and people travelling from different part of the world. This thereby requires that the business has an effect as people travelling from other places pays the airlines in their currency which is then converted into Ringgit. Changes in the exchange rate will have an effect on the final outcome as after converting the currency into the local currency i.e. Ringgit the actual value of the currency can be determined. This will thereby have an impact on the final price which the customer has to pay and will have an effect on the overall performance of AirAsia (Mankiw, 2008). AirAsia which has international tourist using the airlines for commuting within the country uses exchange rate as they convert their currency into Ringgit will have an effect on the performance of AirAsia and is an area which the company has to deal with. This will thereby have an impact on the manner in which the performance of AirAsia gets shaped up in the future. 12. There are different forms and type of financial institutions which work for different purposes due to which the opportunities for business have undergone changes Financial institutions and services which are frequently dealt and found are shares, debentures, bonds, fixed income bearing securities which are available through different financial institutions. In addition to it there are different types of financial services like insurance services, deposit services, investment services and so on. AirAsia which works in the airline sector is affected in case the flow of finance in any of the investment avenues increases as the investors instead of looking towards using the services of the airlines for leisure purpose start to invest. This has an effect on the final business of AirAsia but the impact on the airlines is largely restricted due to the different sector and field that both the type looks for its business. 13. Some of the major financial institutions are Deloitte, Reliance, Banking institutions and so on which has made more and more people enter into the business arena AirAsia which works in the airline sector is affected in case the flow of finance in any of the investment avenues increases as the investors instead of looking towards using the services of the airlines for leisure purpose start to invest. The business of AirAsia gets affected when a new product or service is launched by this providers as people look towards investing into those business opportunities This will thereby has an impact on the final performance of AirAsia as the money supply gets reduced which impacts their business but is largely limited as people still looking towards the services of the airlines continue to do so. 14. One of the major financial institution which looks towards attracting a lot of investors and money is the insurance sector which has different players working on the global arena. AirAsia which works in the airline sector is affected in case the flow of finance in any of the investment avenues increases as the investors instead of looking towards using the services of the airlines for leisure purpose start to invest. The business of AirAsia gets affected when a new product or service is launched by this providers as people look towards investing into those business opportunities. This will thereby has an impact on the final performance of AirAsia as the money supply gets reduced which impacts their business but is largely limited as people still looking towards the services of the airlines continue to do so. 15. The central bank is the main bank of the company which has to look towards managing the money supply in the economy. The central bank looks towards determining the money supply and looks towards controlling inflation and looks towards developing different strategies and rules through which the business is able to gain efficiency in financing the different projects (Kotler, 2002). The Central bank also looks towards developing strategies through which the policies of the economy It will thereby look towards managing the manner in which the economy projects growth rate and will highlight the manner in which better control is exercised and efficiency gained within the system. 16. Some of the major financial institutions which look towards attracting a lot of investors and money is the insurance sector which has different players working on the global arena. AirAsia which works in the airline sector is affected in case the flow of finance in any of the investment avenues increases as the investors instead of looking towards using the services of the airlines for leisure purpose start to invest. The business of AirAsia gets affected when a new product or service is launched by this providers as people look towards investing into those business opportunities This will thereby has an impact on the final performance of AirAsia as the money supply gets reduced which impacts their business but is largely limited as people still looking towards the services of the airlines continue to do so 17. Developing a financial system which is integrated internationally ensures that the economy is able to develop a system which is globally accepted. This will ensure that the overall financial system gains efficiency and the development of different policies will ensure that the business in able to gain efficiency and the different products will be easily accepted by people all around the globe. This also allows comparison as the consumer can compare the products with the other players in the market and based on it develop the best possible strategy through which the business will be able to gain efficiency. The disadvantage of the system is that it will lead transforming the system where the local players face difficulties due to international player and will thereby have an impact on the overall system (Mankiw, 2008). This will also make it difficult for the local player to survive as it will become difficult for the players working in the local region to be able to develop the same strategies which would have been possible if international competition was not prevalent. References Colell, M., Winston, A., Michael, D. & Jerry, R. 1995. Microeconomic Theory. 3r Edition, New York, Oxford University Press, Pearson Education Dohring, B. 2008. Hedging and invoicing strategies: to reduce exchange rate exposure: a euro area perspective. Economic & Financial Affairs, European Papers Ernest, A. 2009. The impact of financial crisis on developing countries: Ghana. Social and Economic Research of the University of Ghana Garg, S. 2010. Microeconomics: Introductory. 7th edition, pp 3.11-9.17, Dhanpat Rai Publication Kotler, P. 2002. Marketing Management. 11th edition, page 147-149, Prentice Hall, India Mankiw, Y. 2008. The influence of monetary and fiscal policy on aggregated demand. Short Run economic function. The Times Magazine Read More