The impact of foreign currency fluctuations on international

business in Egypt

Prepared by: Loay Tarek ID: 123604

Supervised by: Dr Marwa Anis

Year: 2016/2017

Page 1 of 15
Table of Contents

Introduction..3

Research Importance 4

Research gap .....4

Research problem .5

Research question ..5

Literature Review .5

Evaluation and analysis ..10

The Variables ....................................................................................................11

Research aims .11

Research hypothesis ..12

Research design ..12

Primary data and Secondary data 12

Population and sample ...13

Data collection methods and data analysis 13

TIME TABLE ...................................................................................14

REFERENCES .......................................................................................... 15

Page 2 of 15
Introduction

The world passed by many obstacles especially in the international economy that

affects all the countries. The political and economic circumstances both are related and

have a great effect on the other aspects in our countries. Especially in Egypt, there are

many challenges that face the country due to the fluctuations in the Egyptian economy

and its change during the past few years after the revolution of January 25th which affects

many aspects and change the map of the economy. There are many tools that might use

to change or develop the economy such as the balance of payment which includes the

exports and imports, the interest rate, the taxing system, and the foreign currency. So,

there are a monetary policy and a fiscal policy which can be used by the government to

change the economy and it could affect the country in the right or wrong direction. The

economy is passed by some enhancement during the past years. Some of those

enhancements were before the Egyptian revolution and the other is still after the Egyptian

revolution. In general, the fluctuations in the foreign currency would have a great impact

on the business internationally. In specific, the unusual circumstances in Egypt would

have a broader impact on the international business, this would affect it in a wide range

and thereby it could affect the national business too. The government could use many

tools such as exports, taxes, interest rate, and the foreign currency & the exchange rate.

The US dollar is the accepted popular currency all over the world. So, all the transactions

can be done by the US dollar. When the currency is strong against the US dollar; the

economy of the country in the future will be affected (Papaioannou, 2015). After the

requirement of the international monetary fund that are related to the World Bank; Egypt

should remove the support from the main goods and it should make the Egyptian currency

Page 3 of 15
(the Egyptian pound) free without any control from the Egyptian country like other

currencies all over the world. This decision costs Egypt the most due to the change in the

economic map in the country and the standard of living of the Egyptians. Those IMF

requirements are necessary to lend Egypt loans and it represents a guarantee that Egypt

will pay those loans back in the future. There is a main justification for this research. So,

the Justification of this research is studying the impact of the changes in the foreign

currency to know their effects on the international business and the position of the

economy.

The Research Importance of this study includes many points that consists of the

need for knowing the impact of the foreign currency fluctuations in general and in specific

after the economic circumstances that faced in Egypt the last years. This research would

benefit the further researchers and the Egyptian government to know the ability to develop

the economy and the tools which could be used to do that. This important would return to

the Egyptian citizens and for enhancing their standard of living too.

The Research gap exists due to the changes and impacts of the foreign currency

fluctuations on the business. The change in the exchange rate for the national or the

domestic currency due to its relative number against the foreign currency especially the

US dollar would affect the international business in a positive or a negative way. This

issue is an important area to do such research in order to determine the main factors and

reasons that would create that impact on the international business, in order to enhance

the Egyptian economy and its responses to any changes in the global market and its

interaction with the circumstance within the region (JUDITH, 2008).

Page 4 of 15
 The Research problem lies in the possibility of the negative effect of the bad foreign

currency fluctuations on the international business because that would be harmful on the

national economy and it would has a negative effect on the balance of payment of the

country and the international trade with other countries. So, there is a problem and gap

that should be filled to enhance the economy and make the foreign currency stable not to

be fluctuated and to have a positive impact on the international business and the trade

between Egypt and other countries (JUDITH, 2008).

The research question can be summarized as follows: is there an impact of the foreign

currency fluctuation on the international business?

Literature review

Associations with abroad branches, or those that trade all around, are defenseless

before overall cash instabilities. Much the same as the case with private theories,

changes in change rates can wipe out advantages or augmentation grabs. Exactly when

a firm has speculators to reply to, and the considers can continue running alongside

millions, by then it can genuinely influence advantages and incidents. The rapidly

changing cash scene can make associations reluctant to set firm figures in contracts

months before a course of action happens. If a US-based firm makes EUR 10 million,

they can end up with fundamentally more or shy of what they thought depending upon

the advancement of the EUR/USD transformation standard. For example, in June 2011 it

would have been worth $14.4 million, yet in June 2012 it would have been worth $2 million

less. These issues in like manner exist while discussing contracts with worldwide clients.

Page 5 of 15
Notwithstanding the way that something may seem like an average course of action when

it is first formed down, it can turn terrible two or three months sometime later when the

assention is fulfilled. An examination by SunGard Data Systems studied 275 US

associations of various sizes. It found that 59 for every penny of those contemplated had

seen an adversity or get of more than five for each penny in view of trade changes out

the prior year. (Linkevics, 2014)

Thusly, affiliations need to survey the risks of cooperating on a worldwide level. In

any case, it doesn't for the most part work to help them. For instance, McDonald's

saw bargains in Europe augment in 2011, yet the yearly advantages were as a

general rule down in view of a crippling euro. Without a doubt, a couple of

authorities think budgetary masters should be careful this year exorbitantly given

that the US dollar has braced to such an extent starting late and is depended upon

to continue doing thusly. As McDonald's make around seventy five percent of its

advantages abroad, this could be an issue if they have not upheld. Another present

instance of this happened at eBay, with CFO Bob Swan surrendering that cash

instabilities will end up in a genuine quandary line by around three concentrations

in 2012. Ralph Lauren declared that despite the way that cash changes have gone

to help its so far in 2012, it expects a turnaround in fortunes in 2013 (Papaioannou,

2015).

Firms can deal with their money introduction through business hones. Having a really

general affiliation can help with this as, hypothetically, hardships profited falls will be

recuperated when another risings. Where contracts are concerned affiliations can in like

way set up conditions that lessen this presentation. General this comes as a consent to

Page 6 of 15
secure the customer and the affiliation should change scale enhancements beat the

settled upon level. Several affiliations additionally concur on setting all understandings in

their center money, shielding them from any introduction as they will always be paid a

similar relative sum.

Regulating exchange presentation is tied out with controlling risk, as insecurities are by

their extraordinarily nature strange. Notwithstanding, while private budgetary specialists

basically have their own specific spare resources for stress over in the event that they

dismissal to deal with this risk sensibly, affiliations go up against furious money related

authorities and a drop in share respect - and furthermore a drop in benefits. Along these

lines, affiliations need to review the dangers of participating on a general level.

Regardless, it doesn't generally work to help them. For example, McDonald's saw deals

in Europe increment in 2011, however the yearly points of interest were truth be told down

because of a crippling euro. Doubtlessly, two or three specialists think scholars ought to

be attentive this year preposterously given that the US dollar has fortified to such a degree

beginning late and is relied on to keep doing taking all things into accountFirms can deal

with their money introduction through business hones. Having a really general affiliation

can help with this as, hypothetically, hardships profited falls will be recuperated when

another risings. Where contracts are concerned affiliations can in like way set up

conditions that lessen this presentation. General this comes as a consent to secure the

customer and the affiliation should change scale enhancements beat the settled upon

level. Several affiliations additionally concur on setting all understandings in their center

money, shielding them from any introduction as they will always be paid a similar relative

sum (Chawla, 2016).

Page 7 of 15
Firms can deal with their cash introduction through business rehearses. Having a truly

overall affiliation can help with this as, hypothetically, misfortunes profited falls will be

recuperated when another trips. Where contracts are concerned affiliations can in like

way set up conditions that diminish this presentation. As a rule this comes as a consent

to ensure the customer and the affiliation should swapping scale enhancements beat the

settled upon level. A few affiliations in addition surrender to setting all attestations in their

center money, shielding them from any presentation as they will dependably be paid a

similar relative entirety. Directing trade presentation is tied out with regulating hazard, as

changes are by their to an awesome degree nature inconsistent. Regardless, while

private fiscal experts basically have their own specific hold resources for stress over on

the off chance that they carelessness to deal with this hazard fittingly, affiliations face

irritated examiners and a drop in share respect - and besides a drop in benefits. Cash

contrasts are a trademark outcome of the skimming swapping scale structure that is the

standard for most critical economies. The change standard of one cash versus the other

is affected by various essential and particular variables. These unite relative free market

development of the two financial models, money related execution, point of view for

augmentation, propel cost differentials, capital streams, particular help and resistance

levels, and so forth. As these segments are in light of present circumstances in a condition

of unending flux, cash respects change starting with one minute then onto the

accompanying. Notwithstanding, regardless of how a cash's level is, in light of current

circumstances, foreseen that would be controlled by the essential economy, the tables

are reliably turned, as enormous upgrades in a money can manage the economy's

fortunes. In this circumstance, a cash changes into the tail that impacts the canine, so to

Page 8 of 15
talk the effect of a money's gyrations on an economy is clearing, an extensive number

people don't give mindful idea to trade rates in light of the way that a gigantic piece of

their business and exchanges are composed in their private money. For the basic

purchaser, trade rates essentially come into group for incidental exercises or exchanges,

for example, outside travel, import parcels or abroad settlements. The estimation of the

adjacent trade out the remote trade show is an essential instrument in a national bank's

device stash, and in addition a key thought when it sets money related system. Immediate

or circuitous, in this manner, money levels affect distinctive key budgetary factors. They

may expect a segment in the financing cost you pay on your home propel, the advantages

on your hypothesis portfolio, and the cost of items in your neighborhood general store,

and even your occupation prospects (Chawla, 2016).

Outdoor capital will have a habit of flowing into countries that have solid governments,

dynamic economies and stable monetary structures. A country needs a generally stable

money to draw in financing from outside analysts. Something else, the probability of trade

misfortunes caused with money rot may divert abroad budgetary specialists. Capital

streams can be engineered into two standard sorts remote direct hypothesis (FDI), in

which outside analysts take stakes in existing affiliations or deliver new work

environments abroad; and remote portfolio meander, where outside cash related experts

put resources into abroad securities. FDI is a fundamental wellspring of financing for

making economies, for example, China and India, whose headway would be obliged if

capital was far off. Governments unbelievably lean toward FDI to outside portfolio

meanders, since the last are as often as possible contrasted with "hot cash" that can

leave the nation when challenges rise. This contemplate, recommended as "capital flight",

Page 9 of 15
can be started by any negative occasion, including a run of the mill or expected degrading

of the money. A downsized money can achieve "imported" swelling for countries that are

significant dealers. A sudden diminishing of 20% in the neighborhood cash may achieve

imported things costing 25% more since a 20% rot suggests a 25% extension to come

back to the initially starting stage. The swapping scale level is a key idea for most national

banks when setting cash related approach. For example, past Bank of Canada Governor

Mark Carney said in a September 2012 talk that the bank considers the transformation

size of the Canadian dollar in setting budgetary approach (Linkevics, 2014).

Evaluation and analysis

There are many studies that have targeted this point regarding the impact of the foreign

currency fluctuations on the international business and the international trade all over the

world. Some studies concern with the impact of the foreign currency fluctuations on the

number of exports, the balance of payment, and international trade between countries.

Other studies concern with studying the tools of the fiscal and monetary policies of the

governments. Some studies concern with the reason and causes that make the currency

to be weak against the foreign currency and the ways of overcoming this problem and the

ways to develop and enhance the economy. This study is different from previous studies

due to its application in the Egyptian environment and on the Egyptian companies in

Egypt. The analysis of the previous studies is important because those studies concern

with certain circumstances in some countries that might not be adoptable and in

congruent with Egypt. Also, Egypt passed with some circumstances that makes it a

special case other than the rest of countries, due to the revolution of January 25th and

Page 10 of 15
June 30th too. So, the circumstances of Egypt would get different results and

interpretations that would benefit the researchers to gain an important conclusion for

solutions in Egypt (Kandil, 2006).

The Variables

The variables in this study would be divided into independent and dependent

variables. The independent variable is related to the foreign currency fluctuations. Thus

the independent variable is the foreign currency fluctuations and the dependent variable

is the international business in Egypt. The research would measure the foreign currency

fluctuations through using the exchange rate of the Egyptian pound which is the national

currency of Egypt against the US dollar which is the popular accepted currency in the

world. The research would measure the exchange rate before the floating of the Egyptian

pound and after that floating. The international business could be measured through the

balance of payment including the exports and imports difference. The research will give

negative sign when the imports number is bigger that the exports number, and a positive

sign when the imports number is bigger than the exports number (Chawla, 2016).

Research aims

The objectives of this research are studying the impact of the foreign currency

fluctuations on the international business. The international business with other countries

Page 11 of 15
could be affected by the exchange rate of the national currency to the US dollar. That

fluctuation of the foreign currency has some reasons and results on the international

business.

Research hypothesis

H0: there is no impact of the foreign currency fluctuation on the international business.

H1: there is an impact of the foreign currency fluctuation on the international business.

Research design

The researcher would conduct this research through the quantitative methodology.

The research would measure the foreign currency fluctuations through using the

exchange rate of the Egyptian pound which is the national currency of Egypt against the

US dollar which is the popular accepted currency in the world. The research would

measure the exchange rate before the floating of the Egyptian pound and after that

floating. The international business could be measured through the balance of payment

including the exports and imports difference. The research will give negative sign when

the imports number is bigger that the exports number, and a positive sign when the

imports number is bigger than the exports number.

Primary data and Secondary data

Page 12 of 15
 The researcher will collect primary data through a pilot study and the researcher

will conduct an experiment study to measure the impact of the foreign currency fluctuation

before and after the Egyptian pound floating. The researcher will collect the foreign

currency fluctuations data from the official statistics. The researcher will collect the

international business data from the governmental public and the private companies listed

in the Egyptian exchange market. The researcher will collect secondary data through the

books, the periodicals, the articles, and the governmental officials.

Population and sample

The population of this study is consists of the private Egyptian companies that are

listed in the Egyptian exchange market and the Egyptian government public companies.

Also, the researcher will depend on the population of the transaction of international

business of those companies before and after the floating of the Egyptian pound. The

researcher will select a sample from both of those companies which is concerned with

the number of exports and imports. The researcher will select a sample of the international

business transactions for those companies.

Data collection methods and data analysis

The researcher would collect data through the personal interview and the surveys

that will be conducted to a sample that will be selected from the companies. The

researcher will get the number of exports and imports and the international business

Page 13 of 15
transaction of the companies in the period before and after the floating of the Egyptian

pound. Then the researcher will analysis the data obtained in the SPSS package to get

the results and interpret it. The research will use the ANOVA table as a statistical

technique (Santacreu, 2015).

Timetable

Time January February March April May June July

Framework

Title

Research

Questions

and

Research

Aims

Background

& History

Literature

Review

Analyzing

Methodology

Conclusion

Page 14 of 15
References
Chawla, C. P. (2016). Fluctuation on the Competitiveness of Business. Understanding the Impact of
Exchange Rate, 17-18.

JUDITH, O. C. (2008). THE IMPACT OF EXCHANGE RATE FLUCTUATIONS ON INTERNATIONAL TRADE. 4-9.

Kandil, M. (2006). The effects of exchange rate fluctuations on economic activity in Turkey. ScienceDirect,
467-474.

Linkevics, N. (2014). INFLUENCE OF CURRENCY FLUCTUATION FOR BUSINESS ON BELARUS COUNTRY

EXAMPLE. INTERNATIONAL TRADE, 6-10.

Papaioannou, M. (2015). Exchange Rate Risk Measurement and Management. IMF WORKING PAPER, 1-7.

Santacreu, A. M. (2015). International Trade Fluctuations and Monetary Policy. Trade Portfolio, 2-10.

Page 15 of 15