What is a primary risk of currency fluctuations in international trade?

Currency fluctuations present a significant challenge in international trade, primarily because they can directly impact pricing, profit margins, and overall competitiveness of exported goods. When a company's home currency strengthens against the currency of its trading partner, its goods may become more expensive for overseas buyers, potentially leading to reduced sales. Conversely, if the home currency weakens, while it may make exported goods cheaper and more attractive in foreign markets, it will also increase costs for materials and manufacturing if those inputs are sourced from abroad. This volatility creates uncertainty for companies engaged in international trade, as they must constantly adjust their pricing strategies to remain competitive while managing profit margins amidst variable exchange rates.

The other options, while related to international business, do not directly address the specific consequences associated with currency fluctuations. Improved relationships with other countries, for example, may arise from various factors, but it does not capture the inherent financial risks tied to currency values. Similarly, while increased local market prices can occur, they may not directly result from currency fluctuations in the context of international trade and do not encompass the broader implications for businesses. Enhanced consumer confidence can influence market dynamics but is not directly linked to the risks associated with shifting currency values in international transactions.