The paper “ International Construction Project and Finance” is an opportune example of a finance & accounting coursework. A fluctuating exchange rate is also called a floating exchange rate wherein a currency’ s value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating or a fluctuating exchange rate is called a floating currency. A floating exchange rate is more preferable to a fixed exchange rate since free forces of demand and supply are allowed to determine the exchange rate. Due to these automatic adjustments, a country is able to reduce the impact of shocks and foreign business cycles and also preempt any possibility of having a balance of payment deficit.
In cases of extreme appreciation or depreciation of a currency, central banks normally intervene to stabilize the currency. Hence, the exchange rate regimes of floating currencies may be technically known as a managed float (MacDonald 2010, pp 189)A floating exchange rate can affect an international construction project both positively and negatively. To a smaller extent, a flexible exchange rate boosts international trade since there are no restrictions under the regime.
An international construction company, therefore, benefits since there is free movement of capital, be it physical or monetary. Given the fact that a fixed exchange rate can be altered, this alteration can be done in favor of the international construction project (Marsh 2010, PP 98). To a greater extent, a floating exchange rate has a number of drawbacks hence International investments are not promoted by fluctuating exchange rates. Therefore an international construction project will not work well in such a currency regime because lenders cannot expect the exchange rate to remain stable over a long period of time.
If for instance the construction company imports construction materials, it could be forced to wait until stability is reached, or otherwise incur losses. As a result of unstable conditions of uncertainty and instability of the exchange rate, the volume of international trade and foreign investment is reduced (Marsh 2010, PP 123).
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