Question

how do currency exchange rates impact supply chain location decisions. please provide an indepth explanation.

Answer 1

Before understanding the in-depth explanation of the question that how do currency exchange rates impacts supply chain location decisions?, we have to first understand the meaning of what is exchange rate and what is supply chain.

Let us first understand supply chain, which is as follows:

Supply Chain is the management of various activities which are related to the transfer of products from the place of the producer to the place of consumer. It also involves the activities of transforming of natural resources, or raw materials into finished goods which are then transferred to the end consumer.

Let us now understand Exchange Rate, which is as follows:

Exchange rate is the rate at which the value of currency of one nation versus the currency of the other nation in a economic zone.

Let us now understand the answer of the question, which is as follows:

Supply Chain includes the raw material and their transformation into a finished product which is to be consumed by the end user. Collection of raw material is from different locations and area, this also can be from different nations. At this phase the exchange rate of a currency majorly affects the supply chain location. The producer is unable to export or outsource those raw material or natural resources which are from the other nations having high exchange rate.

Also, the market for the producer also restricts because the producer is unable to approach the market of other nations. If the producer will export its product to the nation having high exchange can lead to loss to the company.

At this point the producer have to select those market or those locations which are in reach of the company. Supply Chain consist of those factors which have a direct impact of exchange rates of the currency of a nation.

Any changes in the exchange rate can open new opportunities for the business or close the existing markets.

These are the some factors which have a direct impact of currency exchange rate on the supply chain location.