Final answer:
Exchange rates significantly influence international business and refer to the bid and ask prices of currencies; fluctuations can affect profitability of businesses engaged in cross-border trade, as seen with the British pound post-Brexit and a French firm's experience from 1999 to 2017.
Step-by-step explanation:
The concept of exchange rates plays a crucial role in international business and finance. When discussing foreign exchange trading, two rates are often quoted: the bid rate and the ask rate. The bid rate is the price at which the bank is willing to buy a currency, and the ask rate is the price at which the bank will sell the currency. A trader asking for quotes on the euro heard from Bank A a quote of €:$ 1.1210-1.1215. Here the bid rate is 1.1210 and the ask rate is 1.1215 dollars per euro.
Exchange rates fluctuate over time and can have a significant impact on the profitability of international businesses. For example, a French firm that incurs costs in euros and sells in U.S. dollars would be affected by the euro to dollar exchange rate shifts. If the exchange rate is favorable, the firm benefits when converting dollars back to euros. Otherwise, it may suffer losses with an unfavorable rate.
Significant changes, like the British pound's depreciation post-Brexit, demonstrate how political events can dramatically affect exchange rates. Another example is the fluctuation of the euro rate against the dollar from 1999 through 2017, as it affected a French firm's profits negatively when the euro strengthened.