Factors that Influence Exchange Rates and How to Mitigate Exchange Rate Risk

Currency exchange rate boardExchange rates hold very high importance for businesses with international operations. Any fluctuations in exchange rates can cause a major adjustment in the financial position of the foreign subsidiary of a company. It is highly important for such companies to identify the factors that influence exchange rates and to develop a risk mitigation plan.

Factors Influencing Exchange Rates

Following are the factors that influence exchange rates:

Inflation

The prevailing rate of inflation in a country directly influences its exchange rate. If the rate of inflation rises, it depreciates the value of the currency making it weaker against foreign currencies. The rate of inflation is influenced by numerous economic factors such as; economic growth, fiscal policy of the country and the monetary policy of the country. Continue reading

Maintain the Perfect Investment Portfolio

investment portfolioIn order to maximize the earnings from investments, it is highly important that the investment portfolio is maintained wisely. You can maximize your earnings and minimize your risk by developing a good investment portfolio. There are a number of factors that must be considered while maintaining an investment portfolio. Following are the things you must consider:

Diversity in the Portfolio

Diversification in the investment portfolio is the best tool to minimize the risk associated with investment. You can diversify your investment portfolio by including a mix of equity shares, bonds, and government securities. It is important that the portfolio reflects investments in different sectors that are independent from each other. This is because companies in a single sector are influenced by the industrial factors at the same time. For example; if a new regulatory requirement requires an industry to increase environmental clean-up costs, this will affect the financial performance of all the companies operating in that industry.

Evaluate the Financial Health of the Companies

Doing proper research from making an investment is highly important. Placing a complete reliance on the analyst reports may not prove to be a good idea at times as there are certain trends that may be overlooked in the reports. You should conduct your own research on the companies. You can use ratio analysis to evaluate the trends in profitability and EPS of the companies. Continue reading

How to Assess the Financial Health of a Company

company healthThe most important thing to do before investing in a company is assessing the financial health of the company. A rational investment is the one that is done after a comprehensive analysis of the financial performance and financial position of the company. Different investors have different goals therefore the assessment differs in accordance with the goals of the investors.

Some investors seek short term gains therefore they are more interesting in holding the stocks in a company for trading rather than for long term. In this case, investors are more interested in the market performance of the shares of the company. On the other hand, some investors seek to invest in a company for a long term. In this case, a deeper evaluation of the financial information of the company is necessary in order to determine whether the company will be able to give out a decent dividend to its investors. Following are the factors that must be considered in both the cases.

Factors to Evaluate In Case of Short Term Investment

For short term investment, the scope of analysis is confined to the market performance of the shares of the company. Different analysts rate the shares of the company to recommend the investors whether they should sell, hold, or buy the shares of a company. These analysts conduct extensive evaluation of the financial health of the company. Some of the factors be consider in this case are listed below: Continue reading

Are Mutual Funds Actually Beneficial For You?

mutual fundsThe popularity of mutual funds is very well known among the investors. The mutual funds have grown significantly over the past few decades. The pace at which they have been accepted by investors all around the globe is commendable. The main reason behind the success of mutual funds is their structure.

Mutual funds provide the investors an easy way to make an investment in a very well diversified portfolio. If put in simple terms mutual funds provide their services by making investment easier for small investors.

Although the fact that mutual funds provide the ease in investment cannot be denied, there are certain weaknesses in the structure of mutual funds. Mutual funds may “hard sell” their services and they may not multiply your investments in the manner as they claim. Continue reading