Currency

							         International Trade



   Currency
Spencer “Del Secksi Mahn” Milliner
      This presentation is
   Dedicated to Mr. Nelms,
 Who taught me how to shatter
 Steel bars with my bare fists.




Figuratively speaking, of course.
              Exchange Rates
   An exchange rate is the price one currency may
    be bought or sold for in another currency.

   Exchange rates are necessary as companies and
    individuals may be required to use the currency
    of the country within which they are doing
    business or investing.
     Foreign Currency Exchange
   Currencies are bought and sold within the foreign
    exchange market, also known as the FX market.

   The foreign exchange market is a worldwide
    network of traders which operates twenty-four
    hours a day.

   The FX market is the largest market in the world.
           FX Market Participants
   Banks and other financial institutions comprise the largest
    section; they earn profits from buying and selling currencies.

   Brokers act as intermediaries between financial institutions and
    charge commissions on the transactions they arrange.

   Customers who require foreign currency for business or
    investments. This includes individuals who need currency for
    purchases abroad.

   Central banks sometime participate in the FX market to try and
    influence the value of their currencies.

    When currencies are purchased by financial institutions or other
    traders in large quantity, they are bought at a wholesale price.
    When an individual exchanges currency at one of these
    institutions, he is usually offered a less favorable exchange rate
    and the institution profits.
        Foreign Exchange Rates
   As exchange rates fluctuate, engaging in FX market
    transactions is risky.

   There’s always the chance that if you wait on exchanging
    currencies (such as the US dollar to the Japanese yen) your
    currency (dollars) may become stronger against the
    currency you are exchanging for (yen) and you profit. In
    this situation, the dollar is considered to have “risen” or
    gained value against the yen. However, the opposite is
    also possible, in which case your dollar would be able to
    buy less yen, and thus “fallen.”

   When one currency can buy an increasing amount of
    another currency, it is considered “strong” against that
    currency. When a currency can buy a decreasing amount
    of another currency, it is considered “weak.”
             Oh My Another Slide
   Having a strong currency allows for cheaper imports, as the cost
    of foreign goods drop.

   While a strong dollar can buy Americans foreign goods at a lower
    price, it makes American goods to foreign customers relatively
    more expensive. A strong dollar can hurt businesses who rely
    primarily on exporting their goods and services.

   With this in mind, it would seem safe to assume that a weak
    dollar would increase a America’s exports, as nations with a
    stronger currency would purchase more American goods,
    improving America’s balance of trade. Right?

                                Right?
     Oh My Another Slide Cont.

Well, the answer is sorta. Although a weakened dollar will spur more
    exports, a tricky fellow by the name of the J-curve prevents this
              from immediately helping the trade balance.




 The remainder of this slide is here to prepare you for the following
                slide, because it’s just that shocking.

                               You’ll get it.
The Electric Slide
      (it was a pun)

                          Most orders on imports and
                           exports are taken several
                           months in advance.

                          When a currency’s value
                           drops, the number of imports
                           stay about the same, but the
                           cost of these imports rise in
                           comparison to the home
                           nation’s currency.

                          The value of exports tend to
                           remain constant.

                          This will cause the balance of
                           trade to worsen until the
                           volumes of imports and
                           exports adjust to the new
                           rate.
         Methods of Exchange
   Fixed Exchange Rates

   Floating Exchange
    Rates

   Hybrid Exchange
    Rates


                           (This image has significant
                            economic… significance)
    FREAKY FRACTAL FRAME



Oh my this shouldn’t be here 



       WHOA FREAKY
       Hello Mr. Nelms
       Suma-bots
       CLICK AGAIN ELLIS!!11
            Fixed Exchange Rates
   Fixed currencies are currencies
    for which the government
    maintains a fixed value.

   Fixed rates do not fluctuate from
    day to day.

   A government that decides to
    keep their currency fixed must          (Angora rabbits are mysterious
    work to maintain it.                fellows, unlike fixed exchange rates)

   Fixed exchange rates are usually        This system prevents inflation,
    used by developing countries             however if the currency’s real
    with immature economic                   market value differs from the
    systems.                                 fixed amount, it can spell
                                             disaster!
      Fixed Exchange Rates Cont.
   Fixed exchange rates played a much larger role when currencies
    were tied to gold.

   Exchange rates were determined by the amount of gold a currency
    could be exchanged for, AKA the gold-exchange standard.

   The United States abandoned the gold-exchange standard in 1971
    under the Nixon administration, and adopted floating rates.

   Although some countries still have fixed exchange rates, most have
    turned to floating or hybrid.
        Floating Exchange Rates
   Floating exchange rates are determined by supply and
    demand.


                                    Most countries with stable economic
                                     markets have floating currencies.

                                    Floating exchange rates are usually
                                     more efficient.

                                    Floating currencies are subject to
                                     inflation.
(Felines are fickle beasts, as
are floating exchange rates)
          Hybrid Exchange Rates
   Many countries utilize a mix of floating and pegged exchange
    rates.

   Governments peg the exchange rate of their currency to another
    (such as the dollar), which does not change from day to day.

   The government periodically reviews the pegged rate, and makes
    adjustments reflecting shifts in market value.

   Other actions by the government (such as changes to national
    interest rates or import tariffs) can also change the currency’s
    value.
Super Secret Cute Slide
    Wait a Minute! You Never Told Us What
     Specifically Affects Exchange Rates!
            I would have gotten away with it too, if it wasn’t for you meddling kids.



   Exchange rates respond to a number of events, such as business
    cycles, tax laws, stock market news, expected inflation, political
    developments, central bank policies, among other things.

   The currency of a country with a growing economy, price stability,
    and a wide selection of goods would be in higher demand than
    that of a country suffering from inflation, has few profitable
    exports, and political unrest.

   There are many other reasons that a particular currency may be
    strong, such as the country may have high interest rates giving
    foreign investors increased returns or news of instability in other
    countries may move investors into their currency, in an attempt to
    avoid risk.
                        European Union
   The European Union is an international organization of
    democratic European Countries.

   The EU was formed after World War II, both as a means of
    prevention for future conflicts and to ensure European
    economic prosperity.

   The EU has grown from its six initial members to these
    twenty-five: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
    Luxembourg, the Netherlands, Portugal, Spain, Sweden, United Kingdom, Cyprus, Czech Republic,
    Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Chocolatonia.


   European integration - countries delegate sovereignty on
    specific matters to common institutions within the EU,
    which can then democratically create decisions.
                               The Euro
   On January 1, 2002 the euro became the single currency of
    twelve of the states within the European Union, specifically Belgium,
    Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands,
    Austria, Portugal, Finland, and Chocolatonia.


   As 144 billion euros were put into general circulation by the
    central banks of the participating countries, national currency
    notes and coins were removed from circulation.

   February 28, 2002 marked the last date that the national
    currencies would be considered legal tender, and the switch to the
    Euro was complete. Former national notes and coins can still be
    exchanged for Euros for an extended period of time.

   It has become the second largest currency in the world, only
    behind the US dollar.
The right man in the wrong place can
 make all the difference in the world.




                                           So wake up, Mr. Nelms.
                                         Wake up and smell the ashes.
High above the lesser European Union members,




 Greater Chocolatonia floats among the clouds