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foreign exchange markets have analyzed the period January 1st- April 2, 2004 for the U.S. dollar- Singapore dollar exchange rate. During this period of time, the exchange rate has decreased from 1.70190 on the 1st of January to 1.67210 on the 2nd of April, with a high of 1.71860 and a low of 1.66690. This means that the Singapore dollar has been strengthening against the U.S. dollar, gaining 0.0298 during this period, that is around 1.75%. The rate is subsequent to the general weakening characteristic of the U.S. dollar on the international financial markets.
The fact that the Singapore dollar has been strengthening has several consequences. For one, the exports from Singapore to the United States are somewhat discouraged. This is a direct consequence of the fact that one will gain less from an export to the United States. AS we know, an export is paid in the currency of the importing currency, that is, in this case, in American Dollars. If we assume that the production of the good cost X Singapore dollars and that this is stable during the period that is being analyzed, we will assume the following simple calculation: an export equivalent to $100,000 will have brought 170,190 Singapore dollars on the 1st of January and only 167,210 Singapore dollars on the 2nd of April, which means a loss due to the exchange rate risk of 2980 Singapore dollars.
On the other hand, because the Singapore dollar has been strengthening against the U.S. dollars, the U.S. exports to Singapore will be encouraged. The U.S. producer will produce the good at a fixed price Y and will receive more by exporting to Singapore, because the export will be paid in Singapore dollars, hence, this will mean more U.S. dollars.
As for the foreign direct investments into Singapore, following the same criterion, these will be encouraged, because it will mean gaining revenues in the Singapore currency, which has been appreciated during the period of time analyzed.
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