International Economics
,Exchange rates
Exchange rates are important for managers because they often have to enter into
contractual agreements with foreign entities (e.g. a foreign shipping company) to
accommodate flows of goods. Foreign want to receive the agreed monetary compensation
in their own currency.
Between 2014 and 2016, oil prices dropped drastically. Yet, the prices that the Dutch
paid for gasoline dropped very little. How come?
The dollar dropped. The Euro becomes stronger, so you bought more dollars.
Raw materials or commodities !! These are products like beans or Iran. These are traded in
commodity market. The biggest changes market is NYMEX. Looks like stock markets, but is
with raw products.
The market is Dollar the big thing. So when a Dutch company want to change, you have to
change first the EU to Dollar and then you can buy.
Example:
2014:
1 Euro is 1 dollar. 1 cane is 100 dollar so you have to pay 100 euro
2016:
1 euro = 0,5 dollar. 1 cane is 50 dollar 100 euro
Nominal Exchange Rates: exchangeable amount of one unit of a Currency for another
currency.
1,3209 is the quotation matter These codes are
commonly accepted abbreviations of currencies that
financial decision makers use to save space.
ISO Quote: 3 Letters of the valuta.
The first is one, the second one is how much you get
from the first. So for 1 euro you get 1,3209 dollar.
The …09 are the basic points:
Basic points: 1/100 of a cent.
So you pronounce the rate in: 1 euro gives you; 1 dollar 32 cents and 9 basic points.
On the big scale the basic point matter. In the supermarket not.
Watch out: the British can do it differently like driving.
For ax market, foreign exchange market = Exchange market.
Fixate rate is the nonunion
* This is a floating Exchange rate*
, Bid Price: the price you can sell your
product for.
Ask Price: the price you can get the
product for
Bid/Ask discrepancy = the difference
between the bis and ask price.
The person or institute that keeps the
market liquid is a market maker
Factors that affect the demand for
currencies. 4 main factors that moves the money What is driving supply and demand?
– Imports and exports: The Peso (MEX) will increase in value, when Mexico will sell a
lot to US and the US sells nothing to MEX. So, the Demand for the MEX will go up!
– Speculation: relates to speculaas; you bought it to sell it later when you think the
money will incise and make more profit. Look at bitcoin
– Portfolio and liquidity diversification: spread the investments. Investors will spread
to make more money and not trade everything
– Monetary intervention by authorities: authorities = central banks. Those are the
only one who have seigniorage, to print the money bills.
FED; Federal reserve system prints Dollars. How more money they will print more.
In 10 minutes you want to make the CAD more expensive; they will use the receiver US-
dollars to buy back their own CAD in the forex market.
– A strong curacy means that the import is easier. The lower curacy it is easier the
export China keeps the yen low. US keep the dollar high.
KYC: Know your customer. So that is the reason you cannot have a large credit card. The
banks know if you can pay.
Nominal and real exchange rate
If it is EUR/USD =1.30 does not mean that you can buy 30% more. You are not allowed to
draw a conclusion on the nominal exchange rate. Because you do not have any more
numbers. The aforementioned exchange rate is referred to as the nominal exchange rate, or
simply as the exchange rate.
The ‘real’ exchange rate provides us with more information on the other hand. The general
formula for the real exchange rate, based on our quoting method, is:
Real exchange rate AB = Nominal exchange rate AB x (Pa: Pb)
Real: is more information.
Price A : price B
a/b= is the quotation matter.
Example: Real exchange rate of GBP/USD = Nominal exchange rate GBP/USD * (Puk: Pus)
,Exchange rates
Exchange rates are important for managers because they often have to enter into
contractual agreements with foreign entities (e.g. a foreign shipping company) to
accommodate flows of goods. Foreign want to receive the agreed monetary compensation
in their own currency.
Between 2014 and 2016, oil prices dropped drastically. Yet, the prices that the Dutch
paid for gasoline dropped very little. How come?
The dollar dropped. The Euro becomes stronger, so you bought more dollars.
Raw materials or commodities !! These are products like beans or Iran. These are traded in
commodity market. The biggest changes market is NYMEX. Looks like stock markets, but is
with raw products.
The market is Dollar the big thing. So when a Dutch company want to change, you have to
change first the EU to Dollar and then you can buy.
Example:
2014:
1 Euro is 1 dollar. 1 cane is 100 dollar so you have to pay 100 euro
2016:
1 euro = 0,5 dollar. 1 cane is 50 dollar 100 euro
Nominal Exchange Rates: exchangeable amount of one unit of a Currency for another
currency.
1,3209 is the quotation matter These codes are
commonly accepted abbreviations of currencies that
financial decision makers use to save space.
ISO Quote: 3 Letters of the valuta.
The first is one, the second one is how much you get
from the first. So for 1 euro you get 1,3209 dollar.
The …09 are the basic points:
Basic points: 1/100 of a cent.
So you pronounce the rate in: 1 euro gives you; 1 dollar 32 cents and 9 basic points.
On the big scale the basic point matter. In the supermarket not.
Watch out: the British can do it differently like driving.
For ax market, foreign exchange market = Exchange market.
Fixate rate is the nonunion
* This is a floating Exchange rate*
, Bid Price: the price you can sell your
product for.
Ask Price: the price you can get the
product for
Bid/Ask discrepancy = the difference
between the bis and ask price.
The person or institute that keeps the
market liquid is a market maker
Factors that affect the demand for
currencies. 4 main factors that moves the money What is driving supply and demand?
– Imports and exports: The Peso (MEX) will increase in value, when Mexico will sell a
lot to US and the US sells nothing to MEX. So, the Demand for the MEX will go up!
– Speculation: relates to speculaas; you bought it to sell it later when you think the
money will incise and make more profit. Look at bitcoin
– Portfolio and liquidity diversification: spread the investments. Investors will spread
to make more money and not trade everything
– Monetary intervention by authorities: authorities = central banks. Those are the
only one who have seigniorage, to print the money bills.
FED; Federal reserve system prints Dollars. How more money they will print more.
In 10 minutes you want to make the CAD more expensive; they will use the receiver US-
dollars to buy back their own CAD in the forex market.
– A strong curacy means that the import is easier. The lower curacy it is easier the
export China keeps the yen low. US keep the dollar high.
KYC: Know your customer. So that is the reason you cannot have a large credit card. The
banks know if you can pay.
Nominal and real exchange rate
If it is EUR/USD =1.30 does not mean that you can buy 30% more. You are not allowed to
draw a conclusion on the nominal exchange rate. Because you do not have any more
numbers. The aforementioned exchange rate is referred to as the nominal exchange rate, or
simply as the exchange rate.
The ‘real’ exchange rate provides us with more information on the other hand. The general
formula for the real exchange rate, based on our quoting method, is:
Real exchange rate AB = Nominal exchange rate AB x (Pa: Pb)
Real: is more information.
Price A : price B
a/b= is the quotation matter.
Example: Real exchange rate of GBP/USD = Nominal exchange rate GBP/USD * (Puk: Pus)
