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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…
Bank of England website http://www.bankofengland.co.uk/mfsd/reserves/backinfo.htm
Blaine, Michael, (09-22-1996) Trade, FDI, and the dollar: explaining the U.S. trade deficit. (Foreign direct investment) Sloan Management Review
OZFOREX Web site: http://www.ozforex.com.au/cgi-bin/forwardrates.asp
Pacific Policy Analysis Computing & Information Facility in Commerce - http://pacific.commerce.ubc.ca/xr/data.html
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…
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…
Krugman, P. & Wells, R. Chapter 10: Aggregate supply and aggregate demand. Retrieved March 5, 2011 from http://www.worthpublishers.com/krugmanwellsnew/pdf/KRUGMAN_WELLS_MACRO_CHAPTER10.pdf
Panckhurst, P.; Lifei, Z.; Wang, J.; Forsythe, M. (2010). China foreign exchange reserves jump to $2.65 trillion. Bloomberg. Retrieved March 5, 2011 from http://www.bloomberg.com/news/2010-10-13/china-s-currency-reserves-surge-to-record-fueling-calls-for-stronger-yuan.html
WTO. (2011). The GATT years: From Havana to Marrakech. World Trade Organization. Retrieved March 5, 2011 from http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm
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…
Gregio, J. (2004). Flexible Exchange Rate Regime. Chile Central Bank. Retrieved from: http://www.bcentral.cl/estudios/documentos-politica-economica/pdf/dpe11.pdf
Walker, a. (2002). The Microstructure of the Jamaican Foreign Exchange Market. Bank of Jamaica. Retrieved from: http://www.bankofjamaica.net/uploads/pdf/papers_pamphlets/papers_pamphlets_the_microstructure_of_the_jamaican_foreign_exchange_market__volumes__volatility_and_spreads.pdf
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.…
Economist, The (2005, Oct. 1). Currency Competition. The Economist. 377(8446), 74.
Economist, The (2005, Nov. 5-11). Building Problems. The Economist. 377(8451), 53.
Read, Madlen (2005, Nov. 8). U.S. Dollar Strengthens Against Euro. AP. Web site:
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…
When discussing the exchange rate there are two components; the nominal exchange rate and the real. The former referring to "the rate at which a person can trade the currency of one country for the currency of another" (Mankiw, G.N. 2004), while the latter is " the rate at which a person can trade the goods and services of one country for the goods and services of another" (Mankiw, G.N. 2004). While the nominal exchange rate of one Dollar for .7593 Euros (Google Finance.com. February 14, 2012) garners the headline attention, it is the real exchange rate which is "a key determinant of how much a country exports and imports" (Mankiw, G.N. 2004). The practical application of the exchange rate is the appreciation or depreciation of a currency and the impact of that move on the affordability of goods and services.
Economists cite multiple factors for the movement of currencies relative to one another: inflation differentials, interest rate differentials, current account deficits, public debt, and political stability-economic performance (Investopedia.com. July 23, 2010). In the context of the Dollar-Euro trade, only a few of these factors directly play into the determination of the exchange rate. Inflation differentials mean very little due to the fact that Eurozone inflation year over year is averaging 2.748%, while the U.S.is averaging 2.96% (Global Rates.com. 2012). If there were a significant differential in inflation, lower inflation nations would have comparably stronger currencies. Interest rate differentials also have negligible impact in the Dollar-Euro currency trade. The Federal Reserve and European Central Bank have kept short-term interest rates under one percent for several years to encourage borrowing and liquidity. A large differential would indicate the country with higher rates would experience higher capital inflows and a currency appreciation. Both the Eurozone and U.S. run considerable current account deficits, the former 100 billion U.S. dollars in 2011 (Feldstein, M. November 30, 2011), while the latter experienced a 110 billion deficit in the third quarter of 2011 (U.S. Department of Commerce. 2012).
It is the last two factors which explain the largest movements in the Dollar/Euro trade; debt issuance and political stability and economic growth. The 800 pound gorilla in the room is that the Eurozone is in the midst of sovereign debt crisis which has poisoned the well of economic growth across the European economies. Greece, Spain, Portugal, Ireland and others are rife with high debt to GDP ratios which are strangling private sector opportunities. Germany and France remain the stalwarts of the EU economy, yet even these engines of growth are suffering from the ever increasing debt burden of ECB bailouts and the concomitant surge in possible sovereign credit defaults. While the U.S.
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.
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…
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…
1. Heakal, Reem. Fixed and Floating Exchange Rates. February 2003. On the Internet at http://www.investopedia.com/articles/03/020603.asp
2. Fixed and Floating Exchange Rates. (2003). On the Internet at http://www.tutor2u.net/economics/content/topics/exchangerates/fixed_floating.htm
Heakal, Reem. Fixed and Floating Exchange Rates. February 2003. On the Internet at
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…
1. Fixed and Floating Exchange Rates. (2003). On the Internet at http://www.tutor2u.net/economics/content/topics/exchangerates/fixed_floating.htm
2. S Johnson (July 2004). Dollar falls as data put focus on U.S. deficit. Financial Times
3. Fixed and Floating Exchange Rates. (2003). On the Internet at
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…
Investopedia. (2011). How are futures used to hedge a position. Investopedia. Retrieved March 27, 2011 from http://www.investopedia.com/ask/answers/06/futureshedge.asp
"Foreign exchange forward." (2010). Montego Data. Retrieved March 27, 2011 from http://www.montegodata.co.uk/consult/fx/fxforward.htm
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…
Howells P.G.A, Bain, K, (2007), Financial Institutions and Markets, London, Longman
WalMart, (2014), WalMart Annual report, accessed at http://stock.walmart.com/annual-reports
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…
Kim, Y. & Ying, Y. (2007). An empirical assessment of currency devaluation in East Asian countries. Journal of International Money and Finance. Vol. 26 (2007) 265-283.
Palmer, B. (2012). If currency manipulation is so great for exports, why don't we do it? Slate. Retrieved November 24, 2014 from http://www.slate.com/articles/news_and_politics/explainer/2012/10/china_currency_manipulation_how_does_it_harm_the_u_s_and_what_can_we_do.html
Staiger, R. & Sykes, A. (2008). Currency manipulation and world trade. National Bureau of Economic Research. Retrieved November 24, 2014 from http://www.nber.org/papers/w14600
The Economist. (2014). A fistful of dollars, or perhaps not. The Economist. Retrieved November 24, 2014 from http://www.economist.com/blogs/americasview/2014/04/venezuelas-byzantine-exchange-rate-system
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.…
Van Bergen, J. (2015). 6 factors that influence exchange rates. Investopedia. Retrieved December 23, 2015 from http://www.investopedia.com/articles/basics/04/050704.asp
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…
Beng, G.W. And W.K. Siong. (1993) Exchange Rate Expectations and Risk Premium in the Singapore/U.S. Dollar Exchange Rate: Evidence from Survey Data Applied Financial Economics, 3(4), pp. 365-73.
Bilson, John F.O., (1981) The Speculative Efficiency Hypothesis, Journal of Business, 54, pp. 435-452
Cavalgia, S.W., F.C. Verschoor and C.C.P. Wolff (1993a) Further Evidence on Exchange Rate Expectations Journal of International Money and Finance, 12 (1), pp. 78-98.
Cavalgia, S.W., F.C. Verschoor and C.C.P. Wolff (1993b) Asian Exchange Rate Expectations Journal of the Japanese and International Economics, 7(1), pp. 57-77.
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…
Fed Ex. (2013). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/pr?s=FDX+Profile
Fed Ex First Quarter Results. (2012). IPC. Retrieved from: http://www.ipc.be/en/Newsroom/General%20news/FedEx%20reports%20first-quarter%20results
Berger, A. (2011).Case Study Fed Ex Corporation. Nordstadt: Verlag.
Grady, G. (2010). Foreign Exchange Risk Management Methods. E Zine Articles. Retrieved from http://ezinearticles.com/?Foreign-Exchange-Risk-Management-Methods&id=3047383
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.…
BAHMANI-OSKOOEE, M., & KARA, O. (2003). Relative Responsiveness of Trade Flows to a Change in Prices and Exchange Rate. International Review of Applied Economics, 293-308.
Bahmani-Oskooee, M., & Wang, Y. (2008). IMPACT OF EXCHANGE RATE UNCERTAINTY ON COMMODITY TRADE BETWEEN THE U.S. AND AUSTRALIA. Australian Economic Papers, 235-258.
Cheong, Chongcheul, (2004) "Does the risk of exchange rate fluctuation really affect international trade flows between countries?." Economics Bulletin, Vol. 6, No. 4 pp. 1?8
Hegerty, M.B.-O. (2007). Exchange rate volatility and trade. Journal of Economic Studies, 34 No. 3, 211-255
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…
Eichengreen. (2011). Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
Goyal, M., Raman, Wang, and Ahmed; . ( 2011). Financial Deepening and International Monetary Stability.
Michael C. Ehrhardt, & Eugene F. Brigham. (2011). Corporate Finance (4th ed.): Cengage.
OECD. (2011). The Effects of Oil Price Hikes on Economic Activity and Inflation.
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
Bychuk, Oleg V; Haughey, Brian, (2011), Hedging Market Exposures: Identifying and Managing Market Risks, Wiley Finance
Giddy, (2002), Homepage, [online] retrieved from http://giddy.org/giddyonline/index.htm
Oanda.com, (2013), OANDA, the Currency Site, [online], retrieved from http://www.oanda.com/convert/fxhistory
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…
Bakker, A. (2009). International financial institutions. London: Longman
Jeanne, O., Zettelmeyer, J., & International Monetary Fund. (2007). "Original sin," balance sheet crises, and the roles of international lending. Washington, D.C.: International
Olokesusi, F., & National Emergency Management Agency (Nigeria). (2006). The role of international financial institutions in disaster risk management. Ibadan: Nigerian
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…
The objective of fighting poverty and improving the overall living standards of those individuals in the Third World and the newly emerging nations has become huge undertaking. One would think that the world would be getting richer based on the advances in technology and the many new economic opportunities in the global economy. "The global decline in living standards is not the result of a scarcity of productive resources as in preceding historical periods. The 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)
The ability of corporations to easily pick up and move into cheaper labor havens throughout the Third 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 countries earns more than $40,000 a year. But in this same world, 2.8 billion people -- more than half the people in developing countries -- live on less than $700 a year. Of these, 1.2 billion earn less than $1 a day." (Chossudovsky, 1998)
The World Bank is not a bank in the true sense of what the average person would consider a bank. The World Bank has more or less become a specialized poverty focused social and financial assistance program or agency. The World Bank falls under the jurisdiction of the United Nations and is one of their more specialized agencies. The World Bank consists of one hundred eighty four nations currently who are jointly responsible for the oversight of the institution and
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…
Madsen, Poul Thois. "Is Culture a Major Barrier to a Single European Market? The Case of Public Purchasing" Retrieved at http://www.ihis.aau.dk/~pmadsen/purchase.htm . Accessed 18 September, 2005
Market Access and Protocol Commitments" Retrieved at http://www.uschina.org/public/wto/ch-memo.html . Accessed 18 September, 2005
Non-tariff Barriers to Imports" Retrieved at http://www.wright.edu/~tran.dung/Chapter8_Pugel.htm . Accessed 18 September, 2005
Tariff" Wikipedia, the free encyclopedia. Retrieved at http://en.wikipedia.org/wiki/TariffAccessed 18 September, 2005
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…
1. Jorion, Philippe (2009). Financial Risk Manager Handbook (5 ed.). John Wiley and Sons. p. 287. ISBN 978-0-470-47961-2.
2. Bartram, Sohnke M. (2006). "The Use of Options in Corporate Risk Management." Managerial Finance 32 (2): 160 -- 181
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…
Atkinson, Mark. "Rate rises in Europe weaken euro." The Guardian. October 6, 2000. Guardian Unlimited Web site. URL:
Dailey, Chris. "Fiscal Policy in the Eurozone." University of Dublin Web site. URL:
Concluding Statement of the IMF Mission on the Economic Policies of the Euro Area." June 27, 2001. International Monetary Fund Web site. URL:
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…
The Bank gets about 10% of its funds from taxpayers, in the form of direct contributions from member governments.
The IFC operates partly with funds contributed directly by its member countries but mainly with funds borrowed from the IBRD. The IFC is the fastest growing part of Bank operations, with IFC investments having grown to $2.1 billion last year. Among the transnational corporations represented on the IFC Business Advisory Council are the Bank of Tokyo, Credit Lyonnaise, Treuhandanstalt, SG Warburg.
www.imf.org www.worldbank.org http://www.atu2.com/news/article.src?ID=294
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…
Bank for International Settlements. (2010). Triennial Central Bank Survey. Report on Global Foreign Exchange Market Activity in 2010. Retrieved 22 May 2014 from http://www.bis.org/publ/rpfxf10t.pdf .
ECR Research. (2014). China's exchange rate policy. Retrieved 22 May 2014 from http://www.ecrresearch.com/chinas-exchange-rate-policy .
ETF Database. (2014). CYB -- Dreyfus Chinese Yuan Fund. Retrieved 22 May 2014 from http://etfdb.com/etf/CYB/ .
MacDonald, R. (2007). Exchange Rate Economies: Theories and Evidence. New York: Routledge.
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…
Bodnar, G. (2015). Techniques for managing exchange rate exposure. Wharton/UPenn.
Retrieved from http://finance.wharton.upenn.edu/~bodnarg/courses/readings/hedging.pdf
Dohring, B. (2008). Hedging and invoicing strategies to reduce exchange rate exposure:
a euro-area perspective. Economic Papers 299, European Commission.
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…
Giddy, I.H., the Corporate Hedging Process, New York University, Stern School of Business, http://pages.stern.nyu.edu/~igiddy/corphdg.html . Ast accessed on January 29, 2009
Meera, a.K.M., 2002, Hedging Foreign Exchange Risk with Forwards, Futures, Options and the Gold Dinar: A Comparison Note, Department of Business Administration, Retrieved at http://lariba.com/knowledge-center/articles/pdf/Malaysia%20-%20GOLD%20-%20Hedging%20With%20Dinar.pdfon January 29, 2009
2009, Hedge, Investopedia, http://www.investopedia.com/terms/h/hedge.asplast accessed on January 28, 2009
1986, Dozier Industries, Stanford University
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…
Anthony, M. (2011). The evolving client profile. Financial Advisor Magazine. Retrieved November 30, 2013 from http://www.fa-mag.com/news/the-evolving-client-profile-7650.html
Baidu 2012 Annual Report. Retrieved November 30, 2013 from http://media.corporate-ir.net/media_files/IROL/18/188488/BaiduAR2012.pdf
BIO. (2013) What is biotechnology? Biotechnology Industry Organization. Retrieved November 30, 2013 from http://www.bio.org/node/517
CBO. (2013). Economic projections. Congressional Budget Office. Retrieved November 30, 2013 from http://www.cbo.gov/topics/economy/economic-projections
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…
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…
The Chinese yuan is not a floating currency. Its exchange rate is managed heavily by the Chinese government and as a result trades within a band set by the Chinese government, on a soft peg to the U.S. dollar. China's currency manipulation may perpetuate the band, but the country is under severe inflationary pressure. This puts the yuan on a steady, long-run appreciation, which can be seen in its chart for the past year:
The yuan one year ago traded at 6.29 to the dollar and today it trades at 6.23. This represents an appreciation of 0.9%. The country face high inflation for much of the year, but that inflation is reported to have dropped to 2.1% in March 2013. This inflation rate is not much different than that of the U.S., which would imply that the exchange rate should remain fairly stable. However, the overriding factor is China's currency band, which is likely to be maintained for the foreseeable future. As a result, the yuan will appreciate in the next year, but only by around the same amount as last year, so that the rate will be around 6.17 yuan to the dollar.
Overall, China represents the best option for Dorchester for selling it televisions. This is almost by default. South Africa is facing a weakening rand amid economic uncertainty. The country still has potential, but the timing is wrong given that the macroeconomic conditions are tough and the rand is depreciating faster than the inflation rate. The situation in Japan is worse. The economy might be better, but the yen is depreciating and there is deflation in the economy. This is bad news all round, and earning yen right now it not wise. This leaves China. China has its own problems -- growth is slowing and currency controls mean that there is a difference between earning yuan and being able to return those earnings to the United States. However, the slow appreciation of the yuan and some overtures to convertibility highlight the reality that China is a fairly safe country in which to invest, in terms of currency exchange rate expectations.
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…
Balance of Trade." (2005). [Online]. Wikipedia the Free Encyclopedia. Available from: http://en.wikipedia.org/wiki/Trade_deficit [19 April 2005]
Beck, B. (12 April 2005). "It's more than the deficit, stupid!" [Online]. Political gateway. Available from: http://www.politicalgateway.com/main/columns/read.html?col=334[19 April 2005]
Cock-a-doodle-doo" (3 Feb 2005). [Online]. The Economist. Available from: http://internationalecon.com/MyCourses/News%20Stories/Economist_com%20%20China's%20exchange%20rate.htm[19 April 2005]
Mann, C.L. (1999). Is the U.S. Trade Deficit Sustainable? Washington D.C: Institute for International Economics
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…
. "China economy: Beijing considers rate rise to cool economy";
EIU ViewsWire. New York: Apr 20, 2004. pg. n/a (c) 2004 The Economist Intelligence Unit Ltd.,Source: Financial Times
2. "Chinese interest rise shakes international market";
The English version of the Chinese People's Daily Online
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…
Ahlberg, J., A. Pitkanen and L.L. Schorsch. 1999. "Forging a New Era for Steel." The McKinsey
Altunisik, M.B. And O. Tur. 2004. Turkey: Challenges of Continuity and Change. New York:
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…
Dohring, B. (2008). Hedging and invoicing strategies to reduce exchange rate exposure: a euro-area perspective. Economic Papers. Retrieved 21 October 2015 from: http://ec.europa.eu/economy_finance/publications/publication11475_en.pdf
Gonnelli, A. (1993). The Basics of Foreign Trade and Exchange. Federal Reserve Bank of New York, Public Information Department.
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…
Watkins, T. (no date). Accounting or translation risk exposure. San Jose State University. Retrieved April 22, 2010 from http://www.sjsu.edu/faculty/watkins/accountrisk.htm
Amin, M. (2006). Should companies hedge against translation risk? Price Waterhouse Coopers. Retrieved April 22, 2010 from http://pwc.blogs.com/finance_and_treasury/files/Translation_risk_hedging_paper_260506.pdf
Pugel, T. (2009). International Economics. McGraw-Hill.Higher Education
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…
Arnold, James. Steel sector stares into the abyss. BBC News.com. March 6, 2002.
http://news.bbc.co.uk/hi/english/business/newsid_1857000/1857914.stm . Accessed April,
Arnold, James. Steel spat could mean wider worries. BBC News.com. March 6, 2002.
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…
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…
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…
Christian, P.(n.d.) Speed-E-Money: A subsidiary of international load center. Retrieved from http://www.speed-emoney.com
n.a. (2002) Understanding the E-Currency and Exchange maker industries. Retrieved from www.financial-spread-betting.com/e-gold.pdf
n.a. (2011) Terms of service. Retrieved from http://www.e-currencybank.com/nview/title/Terms+of+services/?lang=english
n.a.(2011) E-Currency Fact Sheet. Retrieved from http://www.adl.org/internet/e_currency.asp
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…
Koh, T., Fichman, M., & Kraut, R.E. (2009). Trust across borders: buyer-supplier trust in global B2B e-commerce. Academy of Management Annual Meeting Proceedings, 1-6. Retrieved from EBSCOhost.
Kumar, M., & Kumar, M. (2009). An Analysis of E-commerce models and strategies. Advances in Management, 2(12), 7-10. Retrieved from EBSCOhost.
Moore, R.S., & Breazeale, M. (2010). Electronic commerce research: the first 15 years in the fields of marketing, management, and information systems. Marketing Management Journal, 20(1), 105-122. Retrieved from EBSCOhost.
Sunita, D., & Ajeya, J. (2010). Training Need Assessment: A Critical Study. Advances in Management, 3(11), 59-65. Retrieved from EBSCOhost.
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…
Kennon, J. (2012). The Basics of LIBOR. About Investing.
Microchnik, M. (2010). Credit Default Swaps and the Financial Crisis. Academic Commons.
Moffett, M.H., Stonehill A.I., & Eitemen, D.K. (2012). Fundamentals of multinational finance (4th Ed.). Boston, MA: Prentice Hall.
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…
Bloomberg. (2014, September 29). USD to JPY Conversion Chart. Bloomberg.com. Retrieved September 29, 2014, from http://www.bloomberg.com/quote/USDJPY:CUR/chart
Bloomberg. (2014, September 29). AUD to USD Conversion Chart. Bloomberg.com. Retrieved September 29, 2014, from http://www.bloomberg.com/quote/AUDUSD:CUR/chart
Bloomberg. (2014, September 29). EUR to USD Conversion Chart. Bloomberg.com. Retrieved September 29, 2014, from http://www.bloomberg.com/quote/EURUSD:CUR/chart
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
Griffin, Jim. "The Essential Element in Exchange Rate Risk Management." Global Markets Group, Union Bank, 2004. www.worldtrademag.com/CDA/ArticleInformation / features/BNP__Features__Item/0,3483,64179,00.html
Hudock, Brian. "How to Maximize Warehouse Space When Expansion Isn't an Option." Tompkins Associates, Inc., 2003. www.tompkinsinc.com/publications / competitive_edge/articles/05-04-MaximizeSpace.asp
Maugham, Stewart. "Foreign exchange hedging." 1 August, 2000. www.accaglobal.com/publications/studentaccountant/36968
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…
Spot rates from Oanda.com. (2011). Retrieved November 25, 2011 from http://www.oanda.com/currency/converter/
Forward rates from ForexPros.com. Retrieved November 25, 2011 from http://www.forexpros.com/currencies/gbp-usd-forward-rates
US Treasury rate from Yahoo! Finance. Retrieved November 25, 2011 from http://finance.yahoo.com/bonds
UK Treasury rate from The Financial Times. Retrieved November 25, 2011 from http://markets.ft.com/research/Markets/Bonds
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…
Amadeo, K. About.com U.S. Economy. 24 Jan 2012. Article. 14 Aug 2012.
Bankrate.com. How the federal funds rate affects finance. n.d. article. 15 Aug 2012.
Bofah, K. What Effect does the Fed Fund Rate Have on Stock Prices. n.d. Article. 15 Aug 2012.
Madrick, J. "Paul Volcker, Jimmy Carter, and Ronald Reagan." Madrick, J. Age of Greed. New York, NY: Alfred A. Knopf, 2011. 160-176. Book.
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…
Chance, D.M. (2008). Introduction to interest rate options. Louisiana State University. Retrieved December 7, 2011 from: http://www.bus.lsu.edu/academics/finance/faculty/dchance/Instructional/TN01-02.pdf
Farlex Financial Dictionary. (2009). Interest rate option. Retrieved December 7, 2011 from: http://financial-dictionary.thefreedictionary.com/Interest+Rate+Option
Holton, G.A. (2007). Forward rate agreement. Retrieved December 7, 2011 from: http://www.riskglossary.com/link/forward_rate_agreement.htm
Holton, G.A. (2007). Interest rate swap. Retrieved December 7, 2011 from: http://www.riskglossary.com/link/interest_rate_swap.htm
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.…
Bordo, Michael D. (no date). The Gold Standard. Concise Encyclopedia of Economics. Retrieved April 11, 2009 from http://www.econlib.org/library/Enc/GoldStandard.html
Cohen, Benjamin. (no date). Bretton Woods System. University of California at Santa Barbara Retrieved April 11, 2009 from http://www.polsci.ucsb.edu/faculty/cohen/inpress/bretton.html
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…
American Stock Exchange.
Welcome to the American Stock Exchange, 2004. 11 October 2004. http://www.amex.com/
CCH Incorporated. American Stock Exchange (AMEX), 2004. 11 October 2004. http://wallstreet.cch.com/AmericanStockExchangeAMEX/
Investorwords.com. American Stock Exchange. WebFinance, Inc., 2004. 11 October 2004. http://www.investorwords.com/197/American_Stock_Exchange.html
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…
Bliss, R.R. And Smith, D.C., 1998, The Elasticity of interest rate volatility: Chan, Karolyi, Longstaff, and Sanders revisited, Federal Reserve Bank of Atlanta, Working Paper 97-13a
Wikipedia, The Free Online Encyclopedia, November 2006, Interest Rate, http://en.wikipedia.org/wiki/Interest_rate,last accessed on November 25, 2006
Bliss, R.R. And Smith, D.C., 1998, The Elasticity of interest rate volatility: Chan, Karolyi, Longstaff, and Sanders revisited, Federal Reserve Bank of Atlanta, Working Paper 97-13a
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…
Duplessy, C. & Reynaud, E. (2014). Long-term survey of a syringe-dispensing machine needle exchange program: Answering public concerns. Harm Reduction Journal. Vol. 11 (16) 1-9.
Huang, G. (2014). Modeling the impact of needle exchange programs accounting for both HIV and HCV infections and HIV/CV co-infections. Queen's University. Retrieved March 21, 2015 from http://qspace.library.queensu.ca/jspui/bitstream/1974/12155/1/George_Huang_Y_201404_MSc.pdf
Hyshka, E., Strathdee, S., Wood, E. & Kerr, T. (2012). Needle exchange and HIV epidemic in Vancouver: Lessons learned from 15 years of research. International Journal of Drug Policy. Vol. 23 (4) 261-270.
Kwon, J., Anderson, J., Kerr, C., Thein, H., Zhang, L, Iversen, J., Dore, G., Kaldor, J., Law, M., Maher, L, & Wilson, D (2012). Estimating the cost-effectiveness of needle-syringe exchange programs in Australia. AIDS. Vol. 26 (17) 2201-2210.
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…
Harris, Gardenia, Bernard I. Tamas, and Nancy S. Lind. Dynamics of Social Welfare Policy: Right vs. Left. Lanham [u.a.:Rowman & Littlefield, 2007. Print.
Brownstein, Joseph. "Opposition to Clean Needles for Addicts: Symbolism over Science? | Al Jazeera America." Opposition to Clean Needles for Addicts: Symbolism over Science? | Al Jazeera America. 18 Apr. 2014. Web. 10 Mar. 2015. .
"Needle Exchange Program - Alcohol Rehab." Alcohol Rehab. 27 Dec. 2011. Web. 10 Mar. 2015. .
Strike, C., et al. "Ontario Needle Exchange Programs: Best Practice Recommendations. 2006." Toronto: Ontario Needle Exchange Coordinating Committee.
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…
Equal Exchange (2014). Annual Report 2014. USA.
Equal Exchange, (2015). About Us. USA.
Simpson, C. R; & Rapone, A. (Summer 2000). Community Development from the Ground up: Social-Justice Coffee. Human Ecology Review. 7 (1): 46-57.
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…
Berry, Dawn Bradley. "The divorce recovery sourcebook." Los Angeles: Lowell
House, c 1998
Bienenfeld, Florence Ph. D, M.F.C.C. "Do It Yourslef Conflict Resolution for Couples." Franklin Lakes, NJ: The Career Press, 2000.
Cavin, Shelly Smith. "Personality Types and Interpersonal Communication."
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…
Prezant D.J., Weiden M., G.I. Banauch, et al. (2002). Cough and bronchial responsiveness in firefighters at the World Trade Center site. New England Journal of Medicine.
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…
American Psychiatric Association (APA, 2002). Diagnostic and statistical manual of mental disorders (4th Ed.). Arlington, VA: Author.
Breggin, P.A. (2008). Brian disabling treatments in psychiatry: Drugs, electroshock, and the psychopharmaceutical complex. (2nd Edition) New York: Springer University
Burton, R. (2002). The Irish institute of nutrition and health. In Diet and criminality.
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…
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…
Investopedia,. (2003). Capital Asset Pricing Model (CAPM) Definition -- Investopedia. Investopedia. Retrieved 5 February 2016, from http://www.investopedia.com/terms/c/capm.asp
Investopedia,. (2003). Inflation: Inflation and Investments -- Investopedia. Investopedia. Retrieved 5 February 2016, from http://www.investopedia.com/university/inflation/inflation4.asp
Investopedia,. (2008). The Capital Asset Pricing Model (CAPM) - CFA Level 1 -- Investopedia. Investopedia. Retrieved 5 February 2016, from http://www.investopedia.com/exam-guide/cfa-level-1/portfolio-management/capm-capital-asset-pricing-model.asp
Investopedia,. (2012). Beta - Complete Guide To Investment Companies, Funds And REITs -- Investopedia. Retrieved 5 February 2016, from http://www.investopedia.com/walkthrough/fund-guide/introduction/1/beta.aspx
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…
Shaw, Alison. Kinship and Continuity: Pakistani Families in Britain. Published: 2000. Routledge. Retrieved on November 23, 2007. http://books.google.com.pk/books?id=KVQ5Lxd8rNMC&dq=kinship+and+continuity&psp=1
functions of the International Monetary system, a few significant institutions which deal with foreign currency as well as conclude on which system of exchange rates is more useful in the corporate world.
History of the International Monetary System:
In the start of the economical world, people were commonly in the habit of using the barter system to purchase goods that were in need. With time though, the system of trading gold and silver coins started to evolve. Around the 19th century, officially, countries started issuing themselves a basic currency. This marked as the beginning of the modern day monetary system of trade.
In the Pre-World War era, money unions evolved which enabled people of different countries to easily exchange currencies. In this period of time, there was a low level of financial crisis and economies were growing steadily. However, with the World War going on, global trade and the flow…
Eichengreen, B. (2008). Globalizing capital: A history of the international monetary system. Princeton University Press.
Stein, J.L. (1997). Fundamental determinants of exchange rates. University of Oxford.
The World Bank (2005). Getting to know the world bank: A guide for young people. The World Bank
Thornton, R.C. (2001). The nixon-kissinger years: Reshaping America's foreign policy. Paragon House.