Dorchester Company and Foreign Markets

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Table of Contents

Introduction
Exchange Rate Trends
Conclusion/Recommendations
References

Introduction

Dorchesters entry into the foreign markets subjects the company to the volatility that is associated with exchange rates. Exchange rates are subject to various factors including non-economic ones. Consequently, after venturing into foreign markets Dorchester will require to be conversant with exchange rate patterns.

The ability to predict exchange rates will be instrumental in maintaining Dorchesters profitability and shaping the firms investment agendas (Eun & Resnick, 2015). Furthermore, successful entry into new markets requires any entity to be able to minimize risks and maximize profits at all times.

Dorchester is venturing into markets that are spread over three continents. Therefore, the company will have to confront a diverse range of exchange rate volatility. This paper offers the most accurate exchange rate predictions pertaining to the overall environments in Nigeria, Germany, and China. The predictions are based on past trends, recognizable patterns, and future outlooks.

Exchange Rate Trends

The first market where Dorchester aims to venture is in Nigeria where the national currency is the Nigerian Naira (NGN). In the recent past, the NGN has maintained a relatively stable position against the United States Dollar (USD). In the course of the last twelve months, the naira lost 0.51 percent after exchanging at 200NGN in February 2015 and closing at 201.01 in February 2016.

Nevertheless, there has been a high rate of volatility in the short term with the NGN continuously losing ground against the USD on several occasions. For example, in just a matter of a few weeks, the value of the NGN against the USD has shifted between 197 and 204. The issue of counterfeit currency has also had a big impact on the Nigerian exchange rates. On some occasions, the NGN has lost over 100 percent of its value against the USD mostly in informal markets.

Furthermore, over the last year the Nigerian government has continuously intervened to stabilize the demand and supply of the USD in the country. The short-term volatility in the Nigerian exchange market is set to persist as the government struggles to align its monetary policies. However, the relative economic and political stability in Nigeria means that there will not be any significant changes to the current exchange rates.

The other market where Dorchester is planning to ply its trade is in China where the Chinese Yuan (CNY) is the official currency. The CNY has been in the receiving end of the exchange market because over the short term the USD has gained 0.2 percent over the Chinese currency. In addition, the USD gained 4.59 percentage points over the CNY in the course of twelve months after the later having exchanged at 6.26 in February of the previous year (Kilian & Taylor, 2013).

Current trends indicate that there have not been any significant jolts in the USD/CNY exchange rate market over the short-term. This trend is also set to continue in the foreseeable short-term duration. Although there have been considerable rates of economic turmoil in china, this development has not had any significant effects on the exchange rates. Nevertheless, the long-term trends indicate that the USD will continue to lose ground on the CNY.

These trends are adequately reflected in the past 10 years of trading. Dorchester has an upper hand when it comes to forecasting the exchange rates in China because they indicate solid patterns over the past. This trend can be possibly traced to the Chinese Governments grip on economical and political factors.

In Germany, the Euro (EUR) is the official currency and Dorchester needs to look into the associated past exchange rates. The USD/EUR exchange rates indicate good levels of stability. Past statistics indicate that the EUR to USD trade decreased by a margin of 0.79 percent in 26^th of February.

The EUR was going for 1.10 against the dollar by close of February 2016 from 1.12 on February of 2015. This trend indicates that the USD has gained a value of 2.47 against the EUR. These trends indicate a relatively high level of stability in the EUR/USD exchange markets. The German market is however set to be affected by various political and economic factors in the near future. For instance, shocks in the political composition of the European Union and the refugee crisis in the region might affect the exchange rates in the region.

Conclusion/Recommendations

All the countries where Dorchester is planning to trade have well defined exchange markets. However, Nigeria offers a market that is volatile in the short term but more stable in the long run. Dorchester should align most of its monetary policies in Nigeria with long-term goals. Nevertheless, a mastery of the Nigerian currency market where USD shortages are common can increase Dorchesters profit margins.

Germany offers the least exchange rate difficulty for the company. The market is able to remain stable over both the short term and the long term. Dorchester should prioritize on this market because it comes with minimum risk. Finally, the Chinese exchange market is the hardest to master although it offers Dorchester a level of security from political and economical uncertainties.

References

Eun, C. S., & Resnick, B. G. (2015). International financial management. Boston: McGraw-Hill Irwin.

Kilian, L., & Taylor, M. P. (2013). Why is it so difficult to beat the random walk forecast of exchange rates?. Journal of International Economics, 60(1), 85-107.

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Dorchester Company and Foreign Markets

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