Exchange Markets

A simple web exercise…

Currency is tool by which exchange occurs. Its value is determined by many factors including:

1. Prospects for the country’s economic condition

2. Perception of safety and the currency’s value as a “store of value”

3. Domestic Inflation/interest rates, and

4. The country’s monetary policy.

Understanding the impact of currency valuation will help you understand the decisions that must be made for businesses involved in global trade.

Question 1: You are planning a well-deserved vacation over spring break. You need to determine where your limited funds will provide you with the “most” money. You’ve chosen three potential destinations; Florida, Cancun and London. Focusing on the value of your discretionary funds ($1,000), which location will provide you with the best value for your dollar? Why?

Question 2: You are the merchandising agent for Macy’s. You need to bring in a line of clothing for sale at your stores nationally. The manufacturers that can handle this order are located in Malaysia, Thailand, Philippines and China. Based on current exchange rates, what country can provide you with the lowest cost manufacturing capability? Why?

Question 3: You are an investor and have become discouraged with the international stock market and desire placing your money in a fixed investment that will provide you safety of your principal, and the highest return on your money. You are looking at investing in government debt and have chosen between US Treasury securities and the government debt of Sweden, Canada, Britain and Germany. Where will you get the best return? Why? (Be wary, your return will also be impacted by exchange rates!)

There is a wide range of currency exchange tools on the web…look for them to aid you in determining your answer to the above questions.