Forex and Stock Company Analysis

The value of one currency when converted into another is known as the exchange rate. Successful forex trading is the art of predicting when and in which direction currencies will fluctuate in value in relation to one another.

While it’s a simple notion to understand, the consequences for business are enormous. This post will look at how foreign exchange rates affect a company’s value and how we can analyze a company using Forex.

Forex and Stock Company Analysis
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The Effect of Forex on a Company’s Value

When the dollar, for example, drops in value, we call it depreciation, whereas an appreciation in value is when the dollar rises in value. When the dollar’s value falls, businesses in the United States may become the focus of foreign acquisition attempts.

This is because, like export commodities, these businesses become more affordable to foreign companies who exchange their own currencies for dollars. For business owners and stockholders wishing to sell, this is usually good news.

Another way to for currency exchanges to impact a company’s stock value is by looking at the level of exports. If a USD company is exporting the majority of sales to countries where the currency is appreciating versus the dollar, the number of export sales will probably increase. The reason for this increase is the fact that the non USD company can buy more with the same amount of foreign currency. Whether the increase of sales translate into bigger earnings will depend on how much of the raw materials to make the sale are being imported versus bought at home.

On the other side, if the USD is depreciating against other currencies, a US based company exports may struggle.

Using Forex to Analyze a Company

When analyzing a company, fundamental analysis and technical analysis are two tools to help us when we need to analyze a company’s financials.

Fundamental Analysis

When using fundamental analysis, we are looking at the company and economy as a whole, such as GDP (gross domestic product), unemployment rates, and interest rates. Some key factors to follow are:

  • keeping up to date with a company’s latest developments
  • press conferences or interviews
  • the anticipation of new products in the pipeline
  • analyzing the company’s balance sheet

Technical Analysis

On the other hand, we have technical analysis, where we are no longer looking at events happening throughout the world, but we are now more focused on an in-depth analysis of how things occurred in the past.

If we analyzing the performance of a company, we will study the following:

  • past financial statements, including the income statement
  • stock price chart

We can detect patterns that have occurred previously and are likely to repeat in the future by focusing on movement pattern charts and studying them with several manual and automatic tools. However, there is no guarantee that future success can be based on past performance.

Final Thoughts

An effective way to use Forex to determine a company’s value and use the tools to analyze a company is to look at Python for finance. As we have already seen in previous posts, Python for finance is important since it can easily evaluate the stock market and translate complex stock data into simple data. We can use it to helps us analyze the current state of the stock market and create future predictions for decision-making.

In my next post, we will have a look at how we can obtain and process forex data using Python.