In finance, an exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in relation to another currency.~Wikipedia Currency depreciation happens when a nation’s currency exchange rate (e.g. the Chinese Yuan) decreases in value in comparison to another country’s currency (e.g. the U.S. Dollar). So, if the dollar increases in value compared to the Yuan, it means U.S. based businesses or individuals could receive more for their money from an overseas supplier than they did previously, even if the price in the foreign currency is unchanged. On the other hand, Chinese companies will pay more for … [Read more...]
Why Does China Want to Lower the Value of Its Currency?
The U.S. Labels China a Currency Manipulator On August 5th, 2019, the U.S. Department of the Treasury designated China as a 'currency manipulator'. China has been on the U.S.'s watch list for quite some time. The U.S. believes that China "engaged in persistent one-sided intervention in the foreign exchange market". So the U.S. is requesting that the International Monetary Fund (IMF) "eliminate the unfair competitive advantage created by China's actions". Why would China want to keep the value of its currency artificially low? How Currency Exchange Rates Affect Businesses Currencies are constantly changing in value against other currencies. This is based on a variety of factors … [Read more...]
How High Inflation Drives Countries Towards Crypto
What is CryptoCurrency? A cryptocurrency (aka. Crypto), is an alternative form of payment created electronically rather than through government fiat (decree). The idea behind it is that an algorithm creates a limited amount of currency that is available to individuals to use instead of cash, checks or credit cards. The technology behind it allows you to send it directly to others without going through a 3rd party like a bank. Initially, the untraceable nature of cryptocurrency led governments to suspect that it was being used for nefarious purposes. And some notable cases of purchases on the "dark web" were prosecuted like the "Silk Road" case which operated from 2011-2013. Since then … [Read more...]
Cryptocurrencies and Inflation
In our article, What is the Real Definition of Inflation? we explained that there is a major difference between the the cause and the effect of Inflation and unfortunately both are loosely called "Inflation". More accurately the cause is "monetary inflation" i.e. an increase in the money supply and the effect is "Price Inflation" i.e. an increase in the cost of goods and services. Can Cryptocurrencies "Cure" Inflation Since the dawn of money there has been fear of debasement. In the early years, when gold and silver were the primary forms of currency it was possible that another cheaper metal like lead could be mixed in with the molten gold and because of its near identical atomic weight … [Read more...]
How International Inflation and Currency Fluctuations Affect Todays Businesses
With the current low levels of inflation in developed countries, most consumers and even small business owners are largely unaware and unconcerned with the issue of inflation and currency fluctuation. With most currencies more stable than ever in the 21st century, fears of wild inflation seem to be limited only to developing nations and the distant past. However, even small changes in a currencies value can have a ripple effect that causes massive changes in all businesses across the world. Oil the World Over The most readily apparent example of this is in the case of petroleum. For various historical and political reasons, all petroleum in the world today is traded on a dollar-per-barrel … [Read more...]
Could a Strong Dollar Actually Cause Problems?
It seems that there is the possibility for danger no matter which way the economy goes. You would think that a strong dollar would be a good thing... after-all it allows us to buy things more cheaply on the global market. If our money goes further we are richer, oil is cheaper, imports cost less, etc. But the flip side is that our products are more expensive on the world market and so we export less. In today's article we look at the inherent risks of a strong dollar. ~Tim McMahon, editor. Outside the Box: How the Rising Dollar Could Trigger the Next Global Financial Crisis By John Mauldin This week’s Outside the Box continues with a theme that I and my colleague Worth Wray have been … [Read more...]
2 Types of Money
From the beginning, productivity improved with specialization. If one person can produce fruit more efficiently while the other was a better hunter, more wealth will be generated if the hunter hunts and the farmer farms. Forcing the farmer to hunt or the hunter to farm is just plain inefficient. But in order for the system to work there has to be a medium of exchange. Somehow the farmer has to be able to get the wild game in exchange for his crops. And what if the farmer wants meat but his crops aren't ripe yet? Well, that is how credit developed. In today's post Bill Bonner looks at mediums of exchange i.e. money and credit. He examines how they began and what they mean for us and our … [Read more...]
U.S. Foreign Exchange and The Chinese Currency Exchange Rate
U.S. Foreign Exchange The number of international corporations and financial professionals that follow the ever-changing ratio of U.S. dollars to Chinese Yuan has increased and expanded beyond its borders. This is an indication of just how critical the trade relationship that binds the world's two largest economies has become. Although the relationship between the United States, Canada and Mexico continues to be even more robust than the Sino-American arrangement, the consumer economy of the United States is heavily dependent upon smooth flows of goods from the workshops of China to the Pacific ports of California and Washington State. In many ways, the continued harmonious economic … [Read more...]
What Is Fiat Currency?
Fiat currency is a term that is used to describe a currency which is created by "fiat" or "arbitrary order or decree" of the government. It is not created by the free market or backed by anything like gold, silver or real estate. It is essentially an "IOU- nothing". A lot of people do not realize that every currency in the world today is considered to be a fiat currency. (Although the Chinese may be working on creating a gold backed currency and several OPEC countries have considered it as well). The US dollar, the euro, the Great Britain pound, the Japanese Yen, and the Australian dollar are all fiat currencies, to name a few. Since everyone uses this type of currency, why is it such a big … [Read more...]
Using Forex to Hedge against Inflation
Forex Hedge According to Wikipedia-A foreign exchange hedge (FOREX hedge) is typically used by companies to eliminate or hedge foreign exchange risk resulting from transactions in foreign currencies. In other words, if a company in based in one country most of its expenses are denominated in the currency of that country. So if a company is based in the U.S. most of its expenses are in dollars. But if it sells a significant portion of its products in another country like Mexico then a portion of its income will be in Pesos. If the Peso depreciates against the Dollar the value of their income could cause them to lose significantly even though they thought they were selling at a profit. This … [Read more...]
