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Exchange Rates and Export Opportunities
This paper compares exchange rates between Australia, Great ritain, and Japan from last February 28th, 2003 and August 28th, 2002. Analysis of where a company could focus its export business based on past current and 180 days forward exchange rate trends and other factors will then be examined. Finally a memorandum to convince management that establishing an export business to one of the countries below is a good idea.
Comparative exchange rates between 4 selected countries and the U.S.
elow are the exchange rates listed by the Pacific Stock Exchange for February 28, 2003 for Australia, Great ritain, and Japan. (Pacific Stock Exchange Website)
Great ritain (Pound)
South Korea (Won)
elow are the exchange rates listed by the Pacific Stock Exchange for August 28, 2002 for Australia, Great ritain, and Japan. (Pacific Stock…… [Read More]
In addition, floating exchange rates may also give the government some flexibility with respect to the consumption function. The current issue with Greece and the euro illustrates this. Greece needs to spur economic growth in order to build a current account surplus that will help it to pay off its debt. In a floating exchange rate regime, Greece could do this by reducing the value of its currency, making Greek exports cheaper on world markets. This would bring in the necessary foreign capital. The Greek government, however, does not have control over its exchange rate as a member of the Eurozone. As such, it has no such flexibility to spur export growth. Indeed, Greek products are overpriced on the world market because costs in Greece are out of line with its economy. Although the euro is a floating currency, for the Greek government it is not because it cannot exert…… [Read More]
Fixed Exchange Rates
The aggregate demand -- aggregate supply accounting identity is
C + I + G + E -- M = GDP.
Under a fixed exchange rate system, the following would occur under expansionary monetary policy. The money supply would increase. This encourages spending, spurring demand from consumers and businesses (C and I). In order to balance this, either government spending would need to decline, or net exports would need to decrease. Assume that government spending remains unchanged. If the country is buying more from overseas and exporting less, then foreign reserves would be depleted in order to pay for those goods.
The first major trade agreement came with the General Agreement on Trade and Tariffs (GATT) in 1948, which was designed to help reduce barriers to the trade in goods. Over time, the GATT became replaced with the orld Trade Organization with its successive rounds of negotiations designed…… [Read More]
However, once the floating rate system was implemented, there was a decrease in inflation and unemployment. This helped Chile to experience strong demand for imports and it kept whole sale / retail prices in check. One of the keys to their success was the fact that the central bank utilized flexibility when intervening in the Forex markets. This allowed the country to go through strong periods of stable economic growth and quickly adjust to new challenges in the global economy. (Gregio, 2004)
At the same time, the government must enact policies that will help to support responsible growth. This means that issues such as corruption, crime, inflation, the total amounts of government spending, interest rates and trade figures will influence the prevailing rates in the market. These factors can affect the confidence of traders, investors and ratings agencies. (Walker, 2002)
For example, Jamaica is utilizing a floating rate system. This…… [Read More]
floating exchange rates reflect current events and future expectations; there are many reasons for such continual fluctuations. A brief examination of current events in Europe and the United States illustrates how quickly exchange rates change and what propels them to do so. The article "Euro Falls to 2-Year Low Against Dollar"(Waki, 2005), which appeared in The Moscow Times, succinctly describes the latest exchange rates of the euro and the dollar and the main reasons for these developments.
As of the early hours of November 10, 2005, the euro fell a quarter percent, currently holding at 1.1750 dollars (Waki, 2005). This is another drop in a series of recent falls; for example, it traded at $1.793 on November 7, 2005 and at $1.787 on November 8, 2005 (ead, 2005). This is an interesting situation as the euro had previously and steadily been appreciating. Naturally, a falling euro signals a stronger U.S.…… [Read More]
Exchange Rate Fluctuations
Forex's opening trade on February 14, 2012 for the U.S. Dollar- Euro was one Dollar for .7593 Euros (Google Finance.com. February 14, 2012). Over the period covering the "Great Recession" and the subsequent recovery, the Euro has moved in a yo-yo pattern, at times buoyed by a weak dollar policy of the U.S., and alternately battered by a flight to safety as investors seek the relative strength of the world's reserve currency. Most recently the Dollar- Euro trade has seen the impact of a contagion sovereign debt crisis which has caused vicissitude swings in the currency trade. At the core of these movements however, is the fundamental question of what are the causes and factors of exchange rate fluctuations, and ultimately who are the beneficiaries?
Causes and Factors of Exchange Rate Fluctuations
hen discussing the exchange rate there are two components; the nominal exchange rate and the…… [Read More]
One of the risks that I face in this particular scenario is that by the time September rolls around and I receive the funds from the Swedish government the exchange rate will likely change. If the exchange rate goes against me, for example goes to 11 SKr/$, I would face a shortage of approximately 10%. An even higher risk would be if the exchange rate goes even higher. Research on the fluctuation rate provides me with data that assists me in my dilemma.
According to www.x-rates.com the exchange rate of the Swedish krona to the American dollar
during a recent three-month period has fluctuated approximately six percent with a high of and a low of 6.299. If this rate of fluctuation continues to hold true I face a risk of a six percent rise or decline in the value of the kroner when I receive the funds.
Since…… [Read More]
Exchange Rate Crisis
Exchange rate crises are quite common phenomena in the economic world. From the 1994 Mexican crisis and the 1997 Asian crisis to the 1999 Argentine crisis, currency crises have occurred with a somewhat remarkable frequency. Also, known as currency crises or balance of payments (BOP) crisis, exchange rate crises occur when a country's monetary authority (central bank) has inadequate foreign exchange reserves to sustain its set exchange rates. This is usually caused by trade shocks, persistent budget deficits, foreign interest rate shocks, political uncertainty, banking system weaknesses, and moral hazard problems. An exchange rate crisis is often symbolised by factors such as hyper-inflation, banking crisis, devaluation, and economic recession, clearly indicating the dire consequences a currency crisis can have on the economy. More importantly, an exchange rate crisis can easily spread beyond the national boundary, underscoring the need for measures to prevent the crisis. This paper discusses…… [Read More]
fixed and floating exchange rates mechanisms are the exact opposites of one another, the advantages of one are generally the disadvantages of the other. Anyhow, in order to be able to evaluate for each case in part its positive and negative aspects, we should start with defining each, as most of the advantages and disadvantages derive there from.
The fixed exchange rate mechanism refers to a mechanism where "the government (central bank) sets and maintains the official exchange rate)
." The key word in this mechanism is pegging, which means that the currency has a price set against a major currency of the world and that the central bank ensures that this rate is kept throughout the entire period the currency is pegged.
The main advantage in this case refers to stability. Indeed, a fixed exchange rate mechanism helps eliminate or speculative activity on the respective currency. With no more…… [Read More]
Theoretically speaking, there is only one factor affecting the exchange rate of a country adopting a floating exchange rate regime: the supply and demand of the respective currency on the international market. In this sense, if demand exceeds supply, then the value of the currency will go up and the respective currency will appreciate. On the other hand, if supply exceeds demand, the currency will depreciate and the price of the currency will decrease.
Starting from this statement, however, we can discuss several different factors that make the demand and supply vary, affecting thus the exchange. First of all, we have the level of the interest rate in a country. If the interest rates are higher, then foreign investors will choose to enter the national capital markets, purchase local currency and invest in local bonds or T-bills, which bring high returns, due to high interest rates. This mechanism will lead…… [Read More]
exchange rate risk can be hedged. The current cost of the room is £50 per day, which is: 50 * 1.50 = $75.00. For a consumer, the easiest way to hedge this risk would be to purchase pounds today, so that the cost of those pounds is locked in. The transaction is a money-loser because of the time value of money, except that in this situation the nominal amount of pounds is locked in, so the nominal amount of pounds needed will not change. Only the opportunity to make interest on that money changes. For £50 and one year, this amount is negligible, but for larger transactions the time value of money is significant and important, making this an undesirable option.
If the transaction was larger, it could be hedged on the futures market or with interest rate swaps. A forward contract could also be purchased. Futures have a downside…… [Read More]
Managing Financial isk including Currency Exchange ate isks
Deere and Company are suffering as the string dollar is impacting negative on sales in the Euro zone. The firm is suffering not only due to the exchange rate, but also the high level of competition from other European firms that are operating in the Euro.
If companies operate across international boarders they will face risks associated with exchange rate movement. In the case of a strong home currency, this will make the goods more expensive to purchase if the pricing is based in the home currency. The basing of the price on the dollar, even if it is converted to Euro's effectively passes the risk to the purchaser. The impact can be the price becoming uncompetitive, especially when there are firms that are basing their pricing structure on the same currency as the purchasers.
The firm may deal with the…… [Read More]
country can interfere in the foreign exchange markets. In many cases, the motivation for doing so lies with propping up exporters, by lowering the value of the domestic currency. While this is the most common reason for currency manipulation, it is not the only one. In some cases, currency manipulation aids in the cause of making debt disappear, lowering the value of that debt in order that it might be paid back early. This paper will discuss some of the different ways that countries can affect their exchange rates.
A freely-traded currency should reflect the economic strength of a nation, in particular the expectations for future interest rates. Where expectations for future rates are relatively low, that means that the economy is expected to perform worse. This is the case for Japan. The country has adopted a policy recently of a low yen, in order to provide some spark to…… [Read More]
Changes in the spot rate of exchange between two countries can occur as the result of a change in the relative interest rates in those countries, a change in the balance of trade between those countries and changes in the inflation rates in those countries (Van Bergen, 2015).
The two that are most closely followed are the differences in the interest rates, and the differences in the inflation rates.
A forward is a contract that is written between a party and a counterparty, to exchange currency in a set amount at a set rate in the future. This is proprietary between the parties. A future is publicly-traded. So while it also sets a future date and price for a currency, it is publicly traded, the dates do not change, and the amount is fixed -- to increase the amount you have to buy or sell more futures.…… [Read More]
forward discount in predicting exchange rate modifications. The conclusion of the literature review is that the forward discount is a biased predictor and that are two possible explanations for this situation. One cause would be the presence of a time varying risk premium, and the other the failure of agents to make rational expectations (the inability to use all available information in an efficient manner).
The forward discount puzzle (as a predictor of exchange rate modifications) is a very discussed puzzle in the international finance literature, since its importance is quite high. As a result, numerous studies have concentrated on this issue, i.e. On the causes on the bias. Some authors (Fama, 1984), believe that this problem is traceable to the existence of a time-varying risk premium. Others connect it to learning effect (Lewis, 1989) or irrationality (Bilson, 1981) the "peso problem" (Krasker, 1980),
The "peso problem term" was introduced…… [Read More]
Managing Exchange ate isk
For a number of multinational corporations, currency fluctuations can pose an extreme risk for them. This is because of sudden changes and dramatic amounts of volatility inside the marketplace can have a negative effect on their bottom line results. When this happens, there is a realistic possibility that these challenges could negatively impact their financial position and ability to compete inside many different markets. (Berger, 2011)
In the case of Fed Ex, the company has operations around the globe and is one the larger overnight package delivery services. This means that sudden shifts in the currency could negatively impact their earnings. To fully understand the overall scope and the way they are able to deal with these challenges requires focusing on how this impacts their operations, options financial managers can use to manage it and the benefits / drawbacks of these strategies. Together, these elements will…… [Read More]
Exchange Rate Volatility on Trade Flows
Exchange Rate Volatility
Impact on International Trade Flows
Exchange Rate Volatility
Impact on International Trade Flows
Trade Flow Responsiveness
The dissolution of the Bretton-oods system in 1973 introduced a new era for international markets. No longer would the exchange rates be pegged and fluctuating exchange rates changed the game for international trade and investment. The newly introduced increase in volatility in the foreign exchange markets also increases the risk of uncertainty for all international transactions. The floating rates produce new complexities that have implications for any individual or organization who buys sells, makes, or trades goods or currencies. These implications directly affect nation's balance of trade; however they also literally indirectly affect every individual's lives in one way or another.
The exchange rate volatility has had mixed theories produced by academia in terms of its effects on trade flows.…… [Read More]
International Monetary System and Exchange ate Policies
A report/essay: chapter 17, multinational companies. select topic research write: Multinational vs. domestic financial management exchange rates international trade international monetary system exchange rate policies trading foreign exchange european monetary union interest
rate parity/purchasing power parity international capital structures.
The international monetary system and exchange rate policies
International Monetary systems
These are a set of rules and that regulate how international trade and payments are handled. It facilitates the exchange of capital, goods and services among countries. However, this system does not have a physical presence but, it consists of interlacing rules and procedures and is influenced by the market of foreign exchange. An example of an international monetary system is the International monetary fund. These interlacing rules and procedures are referred to as exchange rate Policies.
Exchange rate policies
These are rules that officials of public finance from different nations have developed…… [Read More]
Exchange ate Movements for the U.S. And Australian Dollar and Hedging
On the 9th June 2013 the initial $90,000 investment was worth $94,724.9. Knowing that the exchange rate on that date was AU $1.0525 to the U.S. dollar, meaning that U.S. $1 would purchase $1.0525, it is possible to determine that the total investment had purchased AU $99,697.96 (Oanda, 2013).
On the 7th June the exchange rate has changed to $1.1019, with the given fund value of AU $99,697.96, the change leaves a fund that is worth U.S. $90,478.23 (Oanda, 2013).
It is possible to look at the exchange rate movements over a period of time taking data from Oanda (2013). The tables below present that value for the last week, the last week of 2013 and the last week of 2011.
Table 1; Exchange rates for 1st - 7th July 2013
7th July…… [Read More]
Global Financing and Exchange ate Mechanisms
oles of International Financial Institutions: IMF, World Bank, and ADB
All international financial institutions have their different goals, objectives, varying expertise, and areas of specialization. This study will focus on the role African Development Bank, World Bank and International Monetary Fund on global finance. The partnerships enhanced are geared towards poverty reduction and economic growth that can be maintained. This is according to the recent announcements made by global financial institutions. The International Monetary Fund mainly focuses on promotion of international financial support and macroeconomic stability together with the growth of the member states.
On the other hand, the World Bank has diverted more attention on assisting member states to see a reduction of poverty levels by emphasizing on the development and social, structural, and institutional dimensions. Evidently, the reform for the financial sector is a key role promoted by international financial institutions. Collaboration…… [Read More]
he globalization of poverty has indeed occurred during a period of rapid technological and scientific advance. While the latter has contributed to a vast increase in the potential capacity of the economic system to produce necessary goods and services, expanded levels of productivity have not translated into a corresponding reduction in levels of global poverty." (Chossudovsky, 1998)
he ability of corporations to easily pick up and move into cheaper labor havens throughout the hird World has actually led to more downsizing, corporate restructurings and the relocations of whole companies which has led to higher levels of unemployment and lower earnings throughout the urban communities and the rural farm. Unemployment was at one time localized in small segments but it has now become an international problem. "We live in a world so rich that global income is more than $31 trillion a year. In this world, the average person in some…… [Read More]
That is supposed to have become one market which does not entail any tariff distinctions between the nations. But it should be noted that some of the analysts feel that it will never become a single entity market, but will remain separated into different varying national markets. The reason is being ascribed to "cultural, informational, logistic barriers and perhaps remaining discriminatory barriers all of which imply an incurable tendency to award contracts to local suppliers." (Is Culture a Major Barrier to a Single European Market? The Case of Public Purchasing)
The general aim of free trade has however changed and it is now not limited any more to the removal of barriers in being able to sell the products made in one country to other countries of the world. This is considered to be even more important for that of the developing countries wherein their progress in development made however…… [Read More]
Managing exchange rate risk can be a daunting task for many international firms attempting to expand overseas, acquire new companies, or simply manage its cash flows. Globalization has created a dynamic environment in which competition can arise to disrupt entire industries. Aspects such as technology, pharmaceuticals, banking, and automobiles have all experienced rapid change as a result of globalization and the competitive forces that underline it. As a result, companies, particularly smaller firms, have a higher propensity to experience volatile earnings overtime. Aspects that impact one sector of the globe can have a residual impact on other areas of the individual firm or industry. Managing exchange rates is therefore a viable option for firms to reduce volatility in earnings while subsequently managing its cash flows from operations. Below, is a 5 step program which could be implemented by a firm attempting to manage its exchange rate risk after an…… [Read More]
Negative Effect of the Euro
The major issue facing the euro as a single currency is the potential problems that EU nations may face in absorbing future economic shocks. This is largely due to the fact that unlike most monetary unions, the euro will not be governed by a central fiscal policy since most member states are reluctant to give up control of taxation and expenditure policies. To compensate, euro countries are bound to observe fiscal guidelines laid down by the Maastricht Treaty of 1992 and the Stability and Growth Pact drawn up in 1997.
The Maastricht Treaty defined criteria that entails annual budget deficits held to 3% of GDP and the gross debt-to-GDP ratio reduced to 60% in order to avoid excessive borrowing by member states. Subsequently the Stability and Growth Pact defined the penalty sanctions to be imposed on defaulting nations. The EU believed that these measures would…… [Read More]
IMF and World Bank in global financing and exchange rate fluctuations
he International Monetary Fund plays a crucial role in the world's economy, especially in global financing and exchange rate fluctuations. However, its influence ranges well beyond those disciplines.
he main responsibility of the International Monetary Fund is to provide loans to nations experiencing balance of payments difficulties. he International Monetary Fund's involvement allows these countries to stabilize their currencies, rebuild their international reserves, continue to import much needed goods, and generally set the stage for strong economic growth.
A country can only ask for International Monetary Fund assistance when it has a serious balance of payments deficit, as in, more money goes out than comes in, and it cannot get financing to meet its international obligations.
he general understanding is similar to the United States Bankruptcy Code, which is, no one benefits from insolvency, neither the debtor nor the…… [Read More]
USD/CNY Currency Exchange elationship
The amount of money passing through a foreign exchange market was pegged at $4.0 trillion per day in April 2010 (Bank for International Settlements, 2010). Among the many currencies traded on the open market, the U.S. dollar (USD) continued to lead the pack by a wide margin; a full 84.9% of all trades involved the USD. By comparison, the Chinese currency (CNY) increased its share of the global FX market from 0.1 to 0.9% between April of 20004 and 2010. To better understand how trade with China impacts the exchange rate this essay will examine monetary policy for both countries.
USD/CNY Foreign Exchange Market
The sum of the current (CA) and capital (CAP) accounts will theoretically be zero if the exchange rate between two currencies is flexible (MacDonald, 2007, p. 7). Since M = + D, where M. is the base money supply, is the…… [Read More]
Transaction exposure risk may be defined as "cash flow risk" and is associated with the impact of FX rate moves on exposure due to transactional accounts, regarding exports, import or dividend repatriation: and FX "rate change in the currency of denomination of any such contract will result in a direct transaction exchange rate risk" (Papaioannou, 2006, p. 4), thus impacting the multinational corporation in terms of affecting the inflow and outflow of cash over a given period.
Translation risk may be defined as the FX rate risk associated with the balance sheet of a company's holdings. The notion is that exchange rates affect the value of a subsidiary in a foreign country and in instances where the subsidiary is consolidated to the parent balance sheet, the risk becomes translational. The way to measure this risk for a company is by assessing the net asset exposure and measuring it against…… [Read More]
It is likely that the retrieved results will indicate a cost of not hedging significantly larger than that of hedging.
Dozier Industries has a long standing tradition and a favourable reputation. The company worked mainly with the military, but also came to engage in civilian contracts. Having operated mostly nationwide, the UK-based company is now presented with the opportunity of conducting international activities. This however implies both benefits, as well as limitations.
A relevant limitation is given by the risks implied by the exchange rates, namely by their future and unknown fluctuations. This is the main reason why organizations choose to sign hedging contracts. The most common hedging alternatives are the forward, futures and option contracts. The option contracts are the most flexible ones, but they do present an additional risk for the seller, ergo employing the premium.
Despite the advances in the financial market, there still are…… [Read More]
The first step is setting up an investment account is to understand the client. Everything flows from this. The client profile is developed through an extensive interview process, wherein the advisor seeks to gain an understanding of the client's personal circumstances, current and envisioned financial situation, risk tolerance and investment knowledge (Anthony, 2011). With this information, the financial advisor can then build a profile based on the portfolio objectives and risk constraints. For this portfolio, the focus will be on exchange-traded funds. The objective of this exercise is to build the optimal portfolio for the client, taking into account the client's personal circumstances and the variety of funds that are available to build the portfolio.
The client is a male, late 20s, with a long-term girlfriend. They have no current plans for children. They are American, living and working in Miami, and therefore are eligible to purchase…… [Read More]
Investment is an injection because money enters the economy that was previous not in the economy. Leakages and investments balance each other when the rate of return on investment compels sufficient investment. Thus, the interest rate determines the equilibrium point between savings and investment. Both households are more sensitive to changes in the real interest rate. A declining real interest rate will allow households to increase demand as their cost of borrowing decreases. For businesses, the real interest rate is less important because it impacts both the cost of borrowing and the expected rate of return on investment.
6. If there is increased labor supply, the following changes occur to the macroeconomic model for general equilibrium. This will allow more products to be produced, which but it should also decrease the cost of labor. Thus, the cost of producing goods will be decreased. The cost of capital should decrease in…… [Read More]
he currency in South Africa is the rand. he rand is a free floating currency meaning that there are few controls on the value of the currency. While the rand is a reference currency in the southern Africa region, it is not considered to be a "hard" currency. he performance of the rand against the USD in the past year is as follows:
he chart shows the downward trajectory of the rand against the dollar. A year ago, the rand traded at 7.73 to the dollar, and today it is 9.12, a decline of 18%. his bodes well for a manufacturing operation in South Africa, where the already-low labor costs would be decreasing over time. It does not bode well for selling in South Africa, however, as the country's currency continues to get weaker, which means profits from South Africa will be worth less in dollar…… [Read More]
4 trillion to about $5 trillion dollars at the end of 2008 to support a rise in U.S. net external debt from $3.3 trillion to $7.4 trillion. (Ibid. 6) Continued financing of the U.S. trade deficits by the rest of the world is also not without its long-term problems: the U.S. would accumulate so much debt over time that the ultimate cost of adjustment would become too high for the U.S. economy. Hence, all indicators regarding the sustainability of the U.S. trade deficit are blinking red, despite the brave face that the Bush administration puts on the issue.
Is China the Source of the Deficit Problem?
The U.S. administration believes that the alleged under-valuation of the Chinese Yuan is the source of its deficit problems since there is a huge and growing trade imbalance between the U.S. exports and imports to China. The U.S. Senate recently passed a bill, threatening…… [Read More]
China announced on Oct. 28, 2004 the first interest rate rise in nine years. In this manner, Beijing is showing its willingness to adopt additional market-oriented reforms in order to have a tighter macro-economic control on the already overheated economy. Although the news regarding the evolution of the Chinese interest rate were contradictory, it would appear that North American economists are welcoming this interest rate increase.
The Chinese economy is rapidly becoming one of the most important in the world, with an annual 8% growth-rate, constant expansion in the preceding years and a history of twenty years of economic reforms. The global economy and especially neighboring countries such Taiwan and Hong Kong are feeling the pressure of the Chinese machine. Investors have made public their fears, since April 2004, that the economy will overheat and are now expecting the austerity measures by the Government to slow the growth and provide…… [Read More]
In addition, a series of joint ventures in which West German steel firms joined with East German firms and Krupp, Klockner, and Thyssen of Germany was pursuing other developmental initiatives in eastern Europe as well. Likewise, Arbed of Luxemburg was involved in steelmaking facilities in the former East Germany. According to Mangum et al., "The rising market for improved galvanizing for automobiles, appliances, canning, and other uses is producing a rash of joint ventures throughout the world. Some of these are internal to various countries and others involve international partners" (p. 74).
As a result, nearly 30% of the world's steel supply is now produced by plants belonging to companies that did not exist just 3 decades ago (Ahlberg, Pitkanen & Storsch 1999). As these authors point out, "Such upstarts have entered a global market that since 1980 has grown by less than 1% a year -- an average combining…… [Read More]
Foreign Exchange isk Management
a) What are the causes of UK and Brazilian markets' revenues in Dollars being lower than expected?
One of the main causes of the revenue in dollars generated from the markets in Brazil and UK being lower than anticipated by the company is due to the depreciation of the countries' currencies against the U.S. dollar. Between January and September, the GBP constantly depreciated against the USD, an aspect that had not been anticipated by the financial team of the company.
b) How is the company doing in these markets?
The company is not operating well in these two markets as the revenues generated in the market have incessantly decreased in the nine months period. As the currency continue to depreciate against the dollar so has the expected revenue depreciated over the period.
c) Based on the given data, should it continue or cease the operations in…… [Read More]
Discussion. Translation risk is one of the most difficult risks to address. The company can adopt specific strategies to reduce its exposure to specific risks, for example partnering with a local firm to reduce governmental risk. Dealing with broad-based country exposure and by extension translational risk, however, is more complicated. One of the best ways to approach the issue is through diversification. For larger countries, however, it may be difficult to deal with exposure.
The best approach to unhedgeable translational risk is to ensure that adverse currency movements are not going to do significant damage to the company. The company's balance sheet should be far from loan covenants (Amin, 2006). The company should be able to explain to shareholders if translation impacts more than a few cents per share. If this is not the case, then the company needs to find ways to hedge that translational risk by earning extra…… [Read More]
Trade Act of 1974 on Euro exchange rates?
Free Trade has been a key agenda for the past three presidents. In an expanding global market, tariffs and trade policies are more important today than they have been in the past. More and more countries are forming alliances such as the North American Free Trade Agreement (NAFTA), the Asian Alliance, and the European Union (EU). These trade agreements are meant to level the playing for all countries, both industrialized and emerging countries.
President Bush's trade policy is aimed at helping to generate American jobs, open markets to American products, and provide economic growth. Sometimes massive increases in imports can have a devastating effect on U.S. industries. [This has been the case for the U.S. steel Industry and is the issue addressed in Section 203 (B) (1) of the Trade Act of 1974. Foreign steel makers have had the luxury of government…… [Read More]
In the contemporary financial environment, individuals who deposit money in the banks earn interest from their deposits. Similarly, commercial banks also receive interests from lodging funds with central banks. In other words, banks compensate savers by adding some percentages of the amount saved in the banks. In a sense, savers are lending their money to banks in order to be used elsewhere. In return, banks compensate savers interest incomes. Meanwhile, the interest rates are quoted as APY (annual percentage of yield) and savings account earns 3% APY. However, negative interest rates reverse this arrangement where savers or depositors are obliged to pay banks for holding their money. Moreover, central banks penalize commercial banks for depositing their funds with them. For example, The ECB (European Central Bank), some smaller European banks, and Bank of Japan have introduced the negative interest rate policy where banks, as well as other financial institutions, will…… [Read More]
There are price differences between the U.S. And UK sites for Toys 'r' Us. One example is the animated Talking Ben stuffed bear, which sells for $9.99 in the U.S. And £21.99 in the UK. The equivalent U.S. price in the UK should be £6.56, so there is a substantial price difference on this product.
Consumers do not, however, have the right to demand equal prices. Each nation represents its own market, so the economic conditions for each nation will be distinct. There are significant differences in the costs that underlie each product on retail shelves that are reflected in the retail price. Thus, the conditions for each market are different and the result will be different prices. Goods can flow across borders, but that does not imply that there is a global market -- each local market has its own conditions.
Furthermore, retail prices for consumer goods…… [Read More]
Online Transaction Empowered by E-Currency Exchange without credit card
The growth of the internet on a public scale, since its arrival in the eighties has allowed businesses to expand internationally. User interactions are no longer restricted to the local level. Easy to use web interfaces allow voice, message and video-based conversations. Entrepreneurship is much easier than before as individuals can place their product catalogues on websites without much set up costs. Country specific currencies (such as the American dollar, Euro, upee etc.) tend to cause problems if users need to purchase something unavailable in their location. This led to the concept of 'E-Currency' which is geared towards online transactions as it removes usage limitations based on country or nationality. The popularity of this industry grew as a way of handling the restrictions imposed on global businesses. Privacy is a major concern in this regard since there are multiple web-based transactions…… [Read More]
exchange of goods and services between two or more people, otherwise known as commerce, is as old a practice as mankind. In recent times commerce has added a twist, pairing it with electronic resources. With the invention of the computer and the creation of the Internet business done online became known as Electronic Commerce (e-commerce). E-commerce combines technology, information systems, and the long reaching arm of the Internet to bring together businesses and customers in a paperless exchange of business information. It has proven to be an alternative means of conducting business that formerly was done in person, by phone, or in a brick-and-mortar store.
Business-to Business electronic commerce facilitates inter-organizational interaction and transaction. Here two or more business entities interact with each other directly or through an intermediary (Kumar & Kumar, 2009). In 1990 Tim Berners-Lee invented the World Wide Web, taking an academic computer network and transforming it…… [Read More]
Global Credit Markets
Assess the importance of LIBO to the world's financial/credit markets.
The London Inter-Bank Offered ate (LIBO) is one of the single most important determinants of interest rates in the world. As such, it commands an unparalleled effect on the world financial and credit markets. According to the text by Kennon (2012), the vast majority of the credit-worthy banks in the world look to the interest rates set daily by the LIBO in order to author their own interest rates. In this regard, the LIBO sets the climate for interest rates in a way that is more immediate, dynamic and impacting that the occasional and reactionary terms offered by organizations such as the United States Federal eserve.
As Kennon notes, the interest rates offered by the LIBO are produced every day at 11AM London time and, from there, may shift numerous times during the course of…… [Read More]
Exchange ate Analysis
The author of this report is to follow the order of Dorchester Inc. And analyze the exchange rates for three different countries. The author will use the United States Dollar (USD) as the common currency and then compare/contrast the exchange rates of the dollar against the Euro, the Yen and the Australian Dollar. All three will be looked at over the last five years using the Bloomberg website. While one would expect these three charts to be at least somewhat similar, they are actually quite different and no two of the three are remotely alike.
The USD/YEN rate, which compares the currencies of Japan and the United States, shows some very sharp activity over the recent years. Of course, 2010 marked a year where the United States and much of the rest of the world was in a sharp recession. While the worst was from late 2007…… [Read More]
Exchange Rate Risk
There are a variety of methods that can be used to reduce foreign exchange risk. Companies have been known to use hedging and reciprocal trading deals in order to offset the risk of foreign currency rates. Hedging entails signing a forward contract with a bank that entitles the business to buy foreign currency at an exchange rate agreed upon on the day when the contract is signed. In this way, the risk of possible loss from future exchange rate fluctuations is reduced. This also means that there is no possibility to profit from favorable exchange rate changes.
When seeking to reduce possible future risks, it is vitally important that a company has an established foreign exchange policy, according to which it plans against risk. All the involved parties, including banks and partners, need to be included in strategies to hedge risks.
Open Cover Marine Cargo Policy
An…… [Read More]
International Monetary Econ
The rates obtained were as of market close on November 25, 2011. Historical rates are difficult to obtain online so this approach is more realistic. The spot rate for USD/JPY is 77.13 and the spot rate for USD/GBP is 0.64399 (Oanda.com, 2011).
The six-month forward rate for USD-JPY is 75.39 and for USD-GBP is 0.6279. The 6-month T-bill rates are for the U.S. 0.05%; for the UK 0.53% and for Japan 0.0%.
If covered interest rate parity holds, then there should be no arbitrage opportunity in trading forwards of these currencies. So for USD-GBP we have the following:
(1 + r£)/(1+r$) = (£/$f)/(£/$s)
For this relationship, interest rate parity does not hold. For the USD-JPY relationship we have the following:
r¥)/(1+r$) = (¥/$f)/( ¥/$s)
/ 1.0005 = 75.39/77.13
0.999 = 0.977
For this relationship, covered interest rate parity also does not hold.
If I have $10,000, my…… [Read More]
Federal Funds Rate
The federal fund rate was part of the solution, comprised in the Federal Reserve Act of 1913, to centralize the banking system and gain public control of the money supply, inflation, and economic growth. The banking crisis of 1907 was a result of decentralized, unregulated banking that caused confusion with private bank notes being used as currency. There were occasional episodes of monetary mismanagement where the money supply was not appropriate to fulfill the needs of the economy. Too much money caused rapid inflation where too little money stunted economic growth by hindering production and the exchange of goods and services. There were no nationally consistent banking policies and no one entity had control to implement policies until the Federal Reserve Act of 1913 became a national law.
The Federal Reserve System was created with the Federal Reserve Act of 1913 with a oard of Governors to…… [Read More]
This economic indicator can be used to determine inequality within a given region or area. It can also be view the capacity for individuals within a particular nation to consume
b. ate of Value- $41,560
c. Source of Information- "Per Capita Personal Income U.S. And All States." Per Capita Personal Income U.S. And All States. Bureau of Business & Economic esearch, 12 Oct. 12. Web. 02 Feb. 2013.
d. Date of information- September 2012
6) Housing Starts-
a. Economic Indicator- Housing starts are usually indicated by the number of privately owned, new houses, under construction within a given period. This data is usually comprised of three, very distinct components of single family houses, condos, and apartment buildings. Housing starts are very important economic indicators as housing is a substantial component of the middle class family's net worth. Home ownership is also a means by which are other industries are successful.…… [Read More]
risk management tools: interest rate futures, interest rate options, forward rate agreement and interest rate swaps.
Interest Rate Futures
An interest rate futures contract is a financial derivative. It allows the buyer of the contract to lock in a future investment rate. Like all derivatives, interest rate futures are based on an underlying security, which is a debt obligation that moves in value as interest rates change (Ord, 2011).
The interest rate future is a contract between the buyer and the seller in which they agree to the future delivery of any interest-bearing asset. The interest rate future allows the buyer and seller to lock in the price of the interest-bearing asset for a future date.
Some examples of underlying instruments of interest rate futures include:
Treasury bills in the case of Treasury bill futures traded on the Chicago Mercantile Exchange (CME)
Treasury bonds in the case of Treasury bond…… [Read More]
The stability is evident in the statistics as well. Between 1880 and 1914, the golden age of the gold standard, inflation averaged 0.1%. Between 1946-2003, even with Bretton oods, inflation average 4.1% (Bardo, n.d.). Short-term price changes, however, could be highly unstable. This is a consequence of the fact that the gold standard ignores fundamental economic principles. Any system where the value of a good is established by artificial means is subject to such shocks. Another drawback to the gold standard is that it gives governments very little discretion over monetary policy. Another drawback is the cost of producing gold. The gold standard relies on having physical gold reserves. Thus, gold must be produced, and for that there is a cost (Ibid).
ith the decline of Bretton oods, the gold standard died. It was replaced by the modern foreign exchange system. At the core of this system are fiat currencies.…… [Read More]
Since inception, the Amex Composite Index has shown an increase of 57.3%, as compared to the NASDAQ Composite's gain of 26.6%, the S&P 500's gain of 7.1%, and the NYSE composite's gain of 14.3% (American Stock Exchange).
Values and volumes of stocks and options at the AMEX are significant. Closing values as of 10/11/2004 at 5:07 PM ET show significant activity. As of this date, the total volume was 44,288,030, with 1,359 block trades. Total options volume was 576,653, and bond volume was 102,000 (American Stock Exchange).
Like other stock exchanges, the AMEX is run by a number of officials. Officers of the AMEX include Chairman and Chief Executive Officer SALVATOE F. SODANO, the President Peter Quick, Executive Vice President alph . afaniello, and Chief Financial Officer and Controller MICHAEL T. D'EMIC. The AMEX also has a Board of Governors, trustees, a nominating committee, exchange officials, floor officials and a…… [Read More]
These high costs will lead to a considerable decrease in the amount of investments in the housing market and will decrease the demand for real estate.
3. Elasticity of interest rates
The elasticity denotes whether or not the interest rate curve can be moved from a point to another and adjusted to the market requests based on the demand and supply for housing loans. The elasticity of the interest rate has been widely discussed by specialized economists, their opinions on the subject varying. In 1998, economists Robert liss and David Smith concluded that "the elasticity of interest rate volatility, the coefficient linking interest rate volatility to interest rate levels, is 1.5.." Furthermore, in regard with the highly elastic interest rates and low elastic interest rates, the two economists stated that "a moderately elastic interest rate process can capture the dependence of volatility on the level of interest rates, while highly…… [Read More]
Definition of Policy
A needle exchange is a harm reduction strategy wherein the program provides clean, unused needles to addicts for the injection of intravenous drugs. The principle is that when addicts do not have access to clean needles, they are far more likely to share needles among themselves. Needle exchanges are typically set up in areas with a high concentration of intravenous drug users. They provide clean, unused needles free of charge.
Arguments for the Policy
The arguments in favor of a needle exchange center around the harm reduction principle. Intravenous drug users exist, and will continue to exist. The role of health providers with respect to these individuals is to reduce the harm that they do to themselves and to others. The policy makes no value judgments against the users, but merely seeks to reduce the spread of HIV / AIDS among that community. This is important…… [Read More]
Exchange is a program designed to educate and promote health among drug-users. Needle Exchange, and similar programs that provide needles and syringes to drug-users are a harm-reducing motive whose aim is to enable access to sterile needles and syringes for individuals injecting drugs. This kind of action is recommended by The World Health Organization (WHO), whose experts suggest that each drug-user injecting drugs needs to be given access to two hundred clean needles and syringes on an annual basis as a way of tackling and preventing the transmitting of HIV and other blood-borne viruses through this method.
Overall, most programs similar to Needle Exchange are facilitated by pharmacies. Some of these programs work from fixed locations, while others are mobile, and some even employ strategically placed sites. The aim of most Needle Exchange programs is to alleviate and prevent the transmission of HIV, as well as other blood-borne viruses, through…… [Read More]
qual xchange Strategic Management Analysis
Introduction of Company
The (qual xchange) is an organization that distributes organic, cocoa, bananas, tea, gourmet coffee, chocolate bars and avocados produced by farmers in Africa, Latin America, and Asia. stablished in 1986, the core competence of the is by paying the agricultural product directly from the farmers assisting the organization to purchase the product at a fair price. Moreover, the organization promotes the sustainable farming by educating farmers to develop quality products. The strategy assists the in procuring quality products at affordable prices, however, the company is facing several threats in a business environment, which affect its operations.
The objective of this strategic paper is to discuss the general environmental factors affecting the in the industry. The paper also discusses the threats facing the company and the strategy to address the problems.
In a competitive business environment, the qual xchange is being…… [Read More]
Rising Divorce Rates
The Need for and Purpose of the Project
Impact of Divorce on Children
Chapter 5-Conclusions, Summary and Recommendations,
The Need for and the Purpose of the Project
Divorce has become popular throughout the many years it has existed and divorce rates continue to increase. More than a million people a year get a divorce (Tucker-Ladd 35). Young couples are more commonly known to get a divorce, than those who have been married for two or three years (35). Forty percent of men and fifty percent of women are divorced before that age of thirty (35). About fifteen to twenty percent of people ages 35 to 55 are now currently divorced (35). About twenty percent of marriages last less than fifteen years (35). Recent statistics say that sixty-five to seventy percent of new marriages will fail (35).
There is one thing in…… [Read More]
Data gaps must also be acknowledged, and approximated if at all possible. hen approximating, conservative estimates should be made -- in other words, when assessing an individual's exposure to second-hand smoke, assuming exposure over a 24-hour period (the maximum possible exposure to the environment) rather than the minimum, is usually preferred. or, in the case of childhood exposure to lead paint, even if this cannot be confirmed, if the individual lived in an area where residency in lead-painted accommodations was likely, exposure to the toxin may need to be factored into an analysis of the subject's health status. Conservative estimates seem like a necessary, compassionate, allowance assessing the complications caused by 9/11. 9/11 was an extraordinary, unprecedented event, and data collection at the point of time was virtually impossible, yet it had very real effects upon emergency responders, given their higher rate of manifesting respiratory illnesses. Creating an approximation of…… [Read More]
United States has the highest rate of confinement of prisoners per 100,000 population than any other Western country. Analyze this phenomena and discuss actions that you feel are necessary to combat this problem.
The United States currently has the highest incarceration rate of any nation worldwide. For example, greater than 60% of nations have incarceration rates below 150 per 100,000 people (Walmsley, 2003). The United States makes up just about five percent of the world's population and yet it houses 25% of the world's prison population (Walmsley, 2009). In 2008 there were more than 2.3 million people held in United States prisons and jails, a rate of approximately 754 inmates per 100,000 people (Sabol, West, & Cooper, 2009). So if we only count adults in the population that translates into a one in 100 American adults is locked up. ussia is the only other major industrialized nation that comes close…… [Read More]
1555209 / .1545953
R/2 =.0059872 c) the ask price for dollars in three months is 1 / 6.435 =.1554001; therefore for FFR 1,000,000 you will receive $155,400.10 d) the bid price for francs in six months is 1 / 6.430 =.1555209; therefore it will cost $77, 760.45 for the FFR 500,000.
3. The bid from the Paris dealer would be.03/.2 =.15.
The ask from the Paris dealer would be.0335 / .202 =.1658415
4. The DEM is undervalued as of December 31, 1999. The PPP calculations for the DEM as follows:
5225 (1.05/1.025) =.5352438;.5252438 (1.045 / 1.02) =.5483624;.5483624 (1.055 / 1.035) =.5589587 should have been the value of the DEM on December 31, 1999.
5. Given the 1% mandatory profit, arbitrage opportunities exist with DEM/FFR exchanges in Frankfurt and Paris. Three point arbitrage opportunities are also possible with transactions beginning with the purchase of FFR in New York; the purchase of…… [Read More]
represents a diversifiable or an undiversifiable risk. Please consider the issues from the viewpoint of investors. Explain your reasoning.
There's a substantial unexpected increase in inflation.
The big issue with inflation is that the same amount of cash becomes worth less. For example, $100 in 1980 was worth a lot more than $100 is now. Some inflation is expected, normal and actually a good thing. However, deflation and stagflation are both less than desirable. As far as investments, whether massive inflation is a bad thing depends on the investment in question. Since variances in inflation/deflation smooth out over time, the bigger issue is usually the fact that returns on investment, revenues and so forth will be inflated in an inflation-heavy period as compared to times when inflation is not an issue. However, people that are on fixed incomes and invest are usually hit quite hard by inflation because their fixed…… [Read More]
In a Pakistani family, a person who get married with kin, will be having a life long obligation with the relatives from the same caste. In this frame work, there is a bit of flexibility but as socio economic considerations are significant for particular marriage choices. In such cases, an individual who is involved in such situation, calls upon an idea of a shared blood concept even if there is no inherited relationship. This way, participants considers themselves as the nature of the relationship between the inherited kinship and the household. This however, it effect's the rule of fraternal solidarity, which is explained in various ways. It highlights the give and take concept forming a mutual bond between the households. This concept does involve the members of family or friends clearly reflecting both kinship relationships plus fraternal solidarity between kin and non-kin.
Anthropologists describe the exchanging of gift as…… [Read More]