Impact of currency exchange rates on Chinese and European markets

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Impact of currency exchange rates on Chinese and European markets

International travel, imports, exports and even currency transfers are all activities that are affected by currency volatility. Every so often, currencies strengthen and weaken against each other.
For the purpose of this report. I will draw comparisons between two world currencies: the Chinese Renminbi and the Euro. The effects on the economies of the two countries if the Euro trades markedly higher than the Chinese Renminbi.For this we place 1EUR=7.3CYN.
With this assumption in mind, the impact it has on Chinese travelers who wish to visit Europe is huge. They will most certainly feel the pinch on their wallets due to the forex rate. In the event that the two currencies were at parity i.e. they are one to one, it would be more favorable to them.
The converse will, however be true in the event that European travelers vacationed in china. The Chinese government and businesses would benefit greatly from taxes though.

A look at foreign investment under these circumstances would mean that more foreign direct investments (FDIs) either by way of start-ups, new enterprises or even acquisitions would be undertaken by Europeans.

The Chinese would, however be less apt to make similar investments in Europe.

The impact on corporations or conglomerates would be more complex due to the nature of their businesses, the host country and thereby the currency used. For instance, Chinese firms that acquire their raw materials from Europe but have majority of their operations in china and by extension a huge proportion of their revenues, will certainly record high costs of production.
The overhead costs like rents, utilities and maintenance will also be higher. Labour costs will also be higher due to the fact that the Chinese firms have to remunerate the employees of the host country in the stipulated currency so as to comply with Europe’s labour laws.

All these increased costs have a negative bearing on the firm’s corporate profits and thereby on equity valuations on the domestic market. Stock prices may drop as a result of these low earnings with the prospect of future profit potential also being gloomier.
On the other hand , Chinese companies with a huge overseas presence and also generate a substantial amount of their revenues in Euros while similarly remunerating their employees in Chinese Renminbi will have a great standing. European firms however, that setup shop in china and generate a majority of their revenue in china and also source their raw materials from china will record higher margins due to the reduced costs.

With this in mind, travelers should always check forex rates before choosing a holiday destination. All this information is readily available online or on local dailies. Credit cards also come in handy when making travel arrangements due to the fact that most credit companies get the best deals and conversions owing to the huge volume of transactions they undertake.

Finally, since currency volatily can be predicted owing to its relativity to some market factors, individuals and corporations can take steps to mitigate risks and play the volatility in their favor.

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