Study Case International Business

Case on foreign exchange rate in indonesia : 
Indonesia is a country in Southeast Asia that has great potential for investment and business. However, the foreign exchange rates in Indonesia have been fluctuating in recent years, which poses a challenge for investors and businesses. In this case, we will explore the factors that affect foreign exchange rates in Indonesia and their impacts on the country's economy and business operations.

Factors that impact foreign exchange rates in Indonesia:

1. Inflation: Indonesia has faced high inflation rates in recent years, which have impacted the demand for IDR in the foreign exchange market. High inflation rates lead to a decrease in the purchasing power of a currency, which can cause a decrease in demand and a decline in foreign exchange rates.

2. Political stability: Political instability can cause uncertainty among investors, leading to a decrease in foreign investment and an increase in demand for foreign currencies. Indonesia has had several political and economic hardships, including corruption, human rights violations, and environmental degradation, which have impacted the stability of the country and its currency.

3. Interest rates: The interest rates set by the central bank can impact the demand for IDR. High-interest rates can attract foreign investments, which can increase demand for IDR and lead to an increase in foreign exchange rates. However, high-interest rates can also lead to an increase in inflation rates, which can have the opposite effect.

Case Questions :

• What impacts have political instability and corruption had on the stability of Indonesia's currency?
• How do the interest rates set by the central bank affect the demand for IDR and foreign exchange rates in Indonesia?
• What are the implications of fluctuating foreign exchange rates for businesses operating in Indonesia, and how can they manage the risks associated with currency fluctuations?

•  How has the foreign exchange rate of IDR fluctuated in recent years, and what are the factors that have caused these fluctuations?

1. In the floating exchange rate market where the majority of currencies are, the value of a currency is determined by how the market values it. In other words, the value is determined by the trust that other people believe in that currency. Political instability and corruption are signs that a country can’t be trusted. Instability and corruption also makes the economy not as smooth as the ease of doing business (in terms of bureaucracy, etc) is low, therefore lowering the trust that market has thus lowering the exchange rate. 

2. High interest rates will attract other foreign investors because of better returns. To invest in the Indonesian market, they have to buy the rupiah first, and it will increase the demand for the currency and its value in the foreign exchange market.

3.  Fluctuating foreign exchange rates can make uncertainly for business, profit, and budget. Firms can manage these risks through the strategy, for example difference currency exposure and maintain the flexibility in pricing strategy to adjust to currency fluctuations

4. The Indonesian rupiah (IDR) has experienced significant fluctuations in recent years, often depreciating against major currencies like the US dollar. The fluctuations caused by political instability such as corruption, human rights violations, and environmental degradation have impacted the county’s stability, investor uncertainty, and its currency. Moreover, the interest rate set by the bank can be one of the factors. High interest rates can attract foreign investments, which can increase demand for IDR and lead to an increase in foreign exchange rates. Correspondingly, as interest rate rises or inflates, it causes inflation rates. Additionally, It will lead to a decrease in the purchasing power of a currency which can cause a decrease in demand and a decline in foreign exchange rates.