Useful Financial Website

1
Useful Financial Website

• www.oanda.com
• Currency converter
• FX History
• FX Trading Simulation

2
The Future of the European Capital Markets An
American Investors View

• John J. Brennan, Chairman, The Vanguard Group,
  February 15, 2000
• Easy access to financial markets
• Free flow of information
• Lower costs
• Performance accountability
• Consistent and intelligent rules

3
Guess Shifts Apparel-Making to Mexico From Los
Angeles ...Wall Street Journal, January 14,
1997

• Jeans maker Guess, Inc., dogged by allegations
  of illegal labor practices, is quietly moving
  most of its U. S. manufacturing to Mexico and
  other countries south of the border.

4
Guess Shifts Apparel-Making to Mexico From Los
Angeles ...Wall Street Journal, January 14,
1997

• the percentage of Guess garments sewn in Los
  Angeles will drop to 35 next month from 75 five
  months ago. Mr. Marciano said the shift was
  mainly a commercial decision to stay
  competitive and lower costs.

5
Guess Shifts Apparel-Making to Mexico From Los
Angeles ...Wall Street Journal, January 14,
1997

• Mr. Marciano said Guess saves 1.50 to 2 a
  garment by sending cut fabric to five sewing
  factories in Mexico as well as plants in Peru and
  Chile. He declined for competitive reasons to
  discuss the total production cost of a garment.

6
Guess Shifts Apparel-Making to Mexico From Los
Angeles ...Wall Street Journal, January 14,
1997

• Unite estimates that less than 5 of the cost of
  a 48 pair of jeans goes for fabric and labor.
  Guess said its manufacturing shift affects
  several million units a year with a wholesale
  value of 300 million to 325 million.

7
The Determination of Exchange Rates

• Shapiro - Chapter 2

8
Problems Chapter 2

• 2.2
• 2.3
• 2.5

9
Foreign Exchange Rates

• Exchange Rate number of units of one currency
  that can be purchased for one unit of another
  currency

10
Exchange Rate

• market-clearing prices that equilibrate
  supplies and demands in foreign exchange markets.

11
Exchange Rate Terminology

• Revaluation - increase in stated par value of a
  pegged currency
• Devaluation - decrease in stated par value of a
  pegged currency

12
Exchange Rate Terminology

• Depreciation - loss in value of a floating
  currency
• Appreciation - gain in value of a floating
  currency

13
Exchange Rate Terminology

• Spot Rate - price of foreign exchange with same
  day payment
• Forward Rate - rate quoted today for delivery at
  a fixed future date (30, 90, 180 days)

14
Fluctuating Value of the Yen per ,1954 - 2008
15
Foreign Exchange ExampleLets do lunch!

• 1 Lit. 1.680 (Jan., 1994)
• Lit. 51.500 / 1.680 30.65
• 1 Lit. 1.600 (June 1994)
• Lit. 51.500 / 1.600 32.19
• 1.54 / 30.65 5

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Exchange Rate Impact
17
Exchange Rate Impact
18
Exchange Rate Impact
19
Exchange Rate Impact
20
Taxes account for about two-thirds of the price
of gas in Europe, compared with about 20 percent
of the price in the United States.
21
Changing Exchange Rates

• Foreign currency appreciation (depreciation) is
  computed as the fractional increase or decrease
  in the dollar value of a foreign currency.

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Changing Exchange RatesAppreciation of the
Pound
23
Changing Exchange RatesAppreciation of the
Pound
24
Changing Exchange RatesDepreciation of the
Dollar
25
Changing Exchange RatesDepreciation of the
Dollar
26
Changing Exchange RatesDepreciation of the
Dollar
27
Collapse and Recovery of the S. Korean Won,
1997-2008!
28
Exchange Rate Impact
29
Currency Boards

• No central bank no discretionary monetary policy
• Currency is convertible at a fixed rate into a
  foreign reserve currency, frequently the U. S.
• Board holds foreign securities as reserves 100

30
Dollarization

• Replacement of the local currency with the U. S.
  dollar
• Panama (1904) Ecuador (2000)
• Expectation of price stability

31
Determining Exchange Rates

• Economic Factors
• Political Factors
• Social Factors

32
Economic Factors

• Relative rate of inflation
• Interest rate differentials
• Economic growth
• Central bank behavior

33
Political Factors

• Government stability
• Government spending
• Taxation

34
Social Factors

• Population growth
• Cultural values
• Health care
• Education
• Retirement

35
Social Factors

• According to the latest Istat statistics, the
  median age of marriage in Italy was 32 years for
  men and 30 years for women. In recent years, the
  average age has increased by 4 years for men and
  6 years for women.
• La Republicca, Summer, 2006

36
Shapiro Problem 2.2

• 2002 US 1 125
• 2006 US 1 115
• a. Dollar value of 1 in 2002 2006?
• 2002 US 1 125 0.008
• 2006 US 1 115 0.0087

37
Shapiro Problem 2.2

• b. change in between 2002 and 2006?
• (e1 e0) e0
• (.0087 .008) .008 8.75

38
Shapiro Problem 2.2

• c. change in US between 2002 and 2006?
• (e0 e1) e1
• (115 125) 125 -8.0

39
Shapiro Problem 2.3

• February 1 1.2966
• May 1 1.3634
• Has the Euro () appreciated or depreciated
  against the dollar?
• By what percent has the Euro appreciated or
  depreciated?

40
Shapiro Problem 2.3

• Appreciation () (e1 e0) / e0 ?
• (1.3634 1.2966) / 1.2966 5.15
• Depreciation () (e0 e1) / e1 ?
• (1/1.3634 1/1.2966) / 1/1.2966 -4.9

41
Shapiro Problem 2.5

• 3/29/07 Rupee(Rs) 0.02327
• 3/30/07 Rupee(Rs) 0.02298
• Depreciation of the Rupee?
• (0.02298 0.02327) / 0.02327 -1.25

42
Shapiro Problem 2.5

• 3/29/07 Rupee(Rs) 0.02327
• 3/30/07 Rupee(Rs) 0.02298
• Appreciation of the Dollar?
• (1/0.02298 1/0.02327) / 1/0.02327 1.262