Exchange rate basics how currency exchange impacts prices
Download
1 / 24

Exchange Rate Basics: - PowerPoint PPT Presentation


  • 338 Views
  • Updated On :

Exchange Rate Basics: How currency exchange impacts prices Background Exchange rates are used to value one currency in relation to another currency. This module focuses on understanding the meaning of exchange rates and how changes in the rates impact prices in general. Overview

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Exchange Rate Basics:' - daniel_millan


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Exchange rate basics how currency exchange impacts prices l.jpg

Exchange Rate Basics:How currency exchange impacts prices


Background l.jpg
Background

  • Exchange rates are used to value one currency in relation to another currency. This module focuses on understanding the meaning of exchange rates and how changes in the rates impact prices in general.


Overview l.jpg
Overview

Currency exchange is traded on world financial markets – similar to stocks and bonds. Trillions of dollars of currency changes hands every day on the currency markets.


Overview4 l.jpg
Overview

A number of websites show the values in the market, a few of which are shown here:

http://online.wsj.com/mdc/public/page/mdc_currencies.html?mod=mdc_topnav_2_3000

http://www.ft.com/markets/currencies

http://moneycentral.msn.com/investor/market/ExchangeRates.aspx

http://finance.yahoo.com/currency?u

www.x-rates.com

www.oanda.com

www.exchange-rates.org


Overview5 l.jpg
Overview

International economics and various markets are highly sophisticated and no activity occurs in isolation.

With this in mind, let us look at currency valuations as if the item could be isolated and independent from other elements in world economies.


Slide6 l.jpg

In week 1, it tool 7.022 Kronas to buy 1 U.S. dollar.

In week 15, it tool 6.693 Kronas to buy 1 U.S. dollar.

Looking at the difference between week 1 and week 15, we can see that the value of the U.S. dollar relative to the Sweden Krona has _________.

In week 1, it tool 7.022 Kronas to buy 1 U.S. dollar.

In week 15, it tool 6.693 Kronas to buy 1 U.S. dollar.

Looking at the difference between week 1 and week 15, we can see that the value of the U.S. dollar relative to the Sweden Krona has declined


Slide7 l.jpg

With a declining U.S. dollar…

Everything else being the same, consumers in the United States would likely pay more for products from Sweden.

Example: If a cell phone importer was paying 600 Krona per phone imported, in week one, it would cost $______to import.

600÷7.022=85.45


Slide8 l.jpg

With a declining U.S. dollar…

Everything else being the same, consumers in the United States would likely pay more for products from Sweden.

Example: If a cell phone importer was paying 600 Krona per phone imported, in week 15, it would cost $________ to import.

600÷6.693=89.65


Slide9 l.jpg

Week 1 = $85.45

Week 15 = $89.65

Which week would U.S. consumers buy more???

Week 1!

Therefore, all else being equal, U.S. consumers benefit from a stronger dollar when buying imports.


Slide10 l.jpg

If it is week six and one U.S. dollar equals 7.052 Krona, how many U.S. dollars could you receive if you had 3,000 Krona??

3000÷7.052=$425.41


Slide11 l.jpg

If one U.S. dollar was worth 6.974 Krona in week 9 and 7.018 Krona in week 11, has the value of the U.S. dollar increased or decreased?

The value of the dollar has INCREASED.

One can now buy MORE Krona with EACH U.S. dollar.


Slide12 l.jpg

Determine the percentage change in the value of the Krona in per U.S. dollar from week 9 to week 11.

6.974-7.018=-0.044

-0.044÷6.974=-0.0063

-0.0063×100=-.63%


Slide13 l.jpg

We can graph the exchange rate over time by placing the Krona per U.S. dollar on the vertical axis and the weeks on the horizontal axis.


Slide15 l.jpg

What is the average value of Krona per U.S. dollar over the entire 15 weeks?

Add all weekly values:

7.022+7.032+…6.693=

104.536

Divide the total by # of weeks:

104.536÷15=6.969




Slide18 l.jpg

When would it be best to entire 15 weeks?export goods to Sweden?


Slide19 l.jpg

When would it be best to entire 15 weeks?export goods to Sweden?

Week 15!


Which currency l.jpg
Which currency? entire 15 weeks?

  • It depends!!

Would you rather have 100 Canadian Dollars or 500 Hong Kong Dollars?


Slide21 l.jpg

Nominal values must be adjusted to “real” converted values.

100 Canadian dollars would be worth $99.63 U.S.

100÷1.0037=99.63

500 Hong Kong dollars would be worth $______ U.S.

500÷7.8072=64.04


How does it all add up l.jpg
How does it all add up? values.

Remember – this is one small piece to the overall global trade puzzle.

Other pieces include inflation, subsidization, tariffs, barriers, politics, supply and demand, type of advantage, etc.


Do prices change daily l.jpg
Do prices change daily? values.

No. The example shows a phone would cost more from one week to the next.

Realistically - importers, retailers, brokers, etc. take exchange rate risks as part of their business environment.


Conclusion l.jpg
Conclusion values.

Foreign Currency Exchange is ONE factor that determines prices of goods you buy, the ability of U.S. manufacturers to export, and so forth.

Next time you buy something made outside the United States – you’ll no currency valuations impacted the cost!


ad