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)

Code

Country

Units/USD

USD/Unit

AUD

Australia (Dollar)

GP

Great ritain (Pound)

JPY

Japan (Yen)

KRW

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 Exchange Website)

YYYY/MM/DD 2002/08/28

USD/AUD

USD/GP

USD/JPY

USD/KRW

AUD/USD

GP/USD

JPY/USD

KRW/USD

Examining exchange rates between the four chosen countries and the U.S.

As can be…...

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Bibliography

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 to further liberalize trade…...

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Works Cited:

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 has…...

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References

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.…...

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References

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:

 http://biz.yahoo.com/ap/051108/dollar.html .

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 real. The former…...

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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.

Exchange Rate
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 the current rate of…...

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 the…...

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 currency risk,…...

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Bibliography

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 to…...

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Bibliography

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…...

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Works Cited:

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

Finance
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 issue by implementing strategies…...

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References

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…...

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References

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

Currency
Appreciate, depreciate

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.

A put option is an…...

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References

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 into…...

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REFERENCES

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.

Impact of the US Election on Global Politics and Economics

Political Landscape

The outcome of the US presidential election shapes the global political landscape in several ways:

Foreign Policy: The president is responsible for formulating and executing US foreign policy. Changes in the White House can lead to shifts in diplomatic alliances, military interventions, and trade agreements. For example, the Trump administration withdrew from the Trans-Pacific Partnership and the Paris Agreement on climate change, while the Biden administration has recommitted to both.
International Institutions: The US is a key member of international organizations such as the United Nations, NATO, and the World....