Posts Tagged ‘currency’

The Great British Pound (GBP) is…

Friday, June 3rd, 2011

The Great British pound (£) is the official currency of the Great Britain. The currency’s official name is “the pound sterling,” but everyone calls it the pound.

Group Of 20 Wants The World’s Currencies To Stay Steady

Monday, October 25th, 2010

It doesn’t make sense at first, but sometimes countries actually want their currencies to be worth less. Of course, if everyone tried to do it at the same time, disaster would ensue…

  • The G-20 – a group of financial leaders from 19 nations and the European Union – met this weekend in South Korea to discuss economic policies related to global economic stability.
  • One of the goals of this meeting was to encourage countries to end “competitive devaluation of currencies.” Devaluing your country’s currency makes it cheaper for other countries to buy from you, and more expensive for your citizens to import goods from other countries. This can boost domestic production and export profits. When a country devalues its currency, other countries often do the same so they can remain competitive in the export market.
  • Both China and the U.S. were singled out for recently devaluing their currencies. Though the G-20 hasn’t set up specific regulations and wouldn’t have the power to enforce them if it had, the hope is that public shaming will keep finance ministers around the world in line.

Facts & Figures

  • China is currently taking in 4% more money than it is expending, reflecting a favorable balance of trade.
  • The U.S. is spending 3.2% more money than it is taking in, indicating a trade deficit.
  • As of Monday morning, one euro was worth $1.39, and one dollar was worth 81.31 yen.

Best Quote

“I want the market to value the fact that we were able to forge a certain level of agreement.” –  Yoshiko Noda, Japanese Finance Minister

The Real Value Of A Falling Dollar

Wednesday, October 13th, 2010

The value of U.S. currency has gone down nearly 10% against the euro in the past three months, but the impact on exports, tourism, the price of oil, and foreign investment may not necessarily be as bad as it seems…

  • When the value of the dollar falls, it means that $1 is worth less compared to one unit of another form of currency. So if $1 was once worth 1 euro, a fallen dollar might be worth only half a euro. That makes U.S. dollars cheap to euro-holders, and euros expensive to dollar-holders.
  • A cheaper dollar means that U.S. goods are more attractive to foreign buyers, so exports will likely rise. Since many American companies make a good portion of their profit outside the country, this could be a significant boost to the economy. A weak dollar is also an enticement for foreign tourist to visit the U.S. and spend lots of euros and yen!
  • The price of imported goods is going to increase. Of course, this could just encourage Americans to drive domestic industry by purchasing more affordable American-made goods. But not every product can be duplicated domestically.

Facts & Figures

  • In 2009, foreign tourists in the U.S. were responsible for $120 billion in revenue.
  • In July, an 8GB iPhone selling for $99 would have cost an Italian customer 78 euros. Today it would cost only 71 euros.
  • If they cashed out now, investors in the Euro Stoxx 50 index would be up 17% from 3 months ago simply because of the change in the dollar’s value.

Best Quote

“International finance isn’t pretty. If everyone focuses on exports, it’s a race to the bottom in exchange rates.” – Aroop Chatterjee, Currency Strategist at Barclay’s Capital

Purchasing Power is…

Tuesday, March 23rd, 2010

Purchasing power measures of the amount of goods and services that can be exchanged for a unit of currency, such as the dollar, as compared with how much could be exchanged for that amount in a previous time. For example, the number of sodas you could buy now for $1.00 compared to the amount you could buy 50 years ago for $1.00.

How long does that dollar bill stay in circulation?

Thursday, December 17th, 2009

With all the wear and tear that those bills go through, it’s surprising that they stay together as long as they do. You can only stuff them all wrinkled-up into your pockets so many times before they just give up. The Fed knows that we aren’t too careful with its bills and so they routinely collect them from banks for “processing” – shredding and disposal. The Fed also ensures that new money makes it back into circulation to replace the worn out stuff. It makes sense because you wouldn’t want your money constantly falling apart on you.

Since the Fed keeps track of all the worn-out money it’s disposing of, the average life span of dollar bills is easy for them to figure out. According to federalreserve.gov, this is the life expectancy for each type of bill:

  • $1 – 21 months
  • $5 – 16 months
  • $10 – 18 months
  • $20 – 24 months
  • $50 – 55 months
  • $100 – 89 months

The list above makes sense: the more used a bill is, the more worn-out it gets.

Today at TILE… Strong Dollar? Weak Dollar?

Wednesday, October 28th, 2009

Today at TILE we asked about the recent weakness of the U.S. dollar. What does that even mean? Who determines the “strength” of our currency? What is the relationship between the strength or weakness of the dollar and the value of the things you buy? And why is it important when it comes to our standing in comparison to the rest of the world?

A “strong” dollar means that you can get a lot for your money, or that it has a higher value relative to other currencies. A “weak” dollar means the opposite: it takes a lot of greenbacks to purchase a smaller amount of foreign currency. Let’s say you went to England to study abroad for a semester. Hypothetically, when you arrived and exchanged your money, you were able to receive 1 British pound for every $2 you exchanged; but by the time you left, you could purchase 1 pound for just $1.60. In this situation, the dollar has gotten stronger and the pound has gotten weaker.

Since we know that currencies don’t lift weights, how does that strength change? In the U.S., the Federal Reserve (“the Fed”) determines the interest rate paid when people borrow money. To a certain extent, this impacts demand, or how likely someone is to decide to buy or invest in U.S. dollars versus another country’s currency. In addition, the U.S. Treasury determines the amount of money that is printed or in circulation, and this determines supply. We are currently printing lots of money (high supply) and paying a low interest rate for borrowing (high demand) – both are inflationary measures chosen with the desire to get consumers to start spending.

While the Fed and the Treasury determine the environment, the current exchange rate is determined by the market based on expectations for future interest rates and the amount of money in circulation.
When thinking about the value of the dollar to you, it is helpful to think about it in two ways: First, what can you purchase with a dollar within your own economy? Second, what can you purchase with that same dollar from other economies?

We can think about how much a dollar buys using jeans as an example. Let’s say you need a new pair. You might want to consider the cost of American-made jeans versus a hot European brand. When the U.S. dollar is stronger, those foreign brands don’t cost as much. However, when the dollar is weaker, it takes more dollars to purchase them. The same can be true for items that require imported raw materials. If it costs more for an American company to import coffee beans, then the cost of that latte in the morning will definitely be higher!

At present, the dollar is viewed as weaker than it was in the not-too-distant past. As the Economist magazine pointed out this week, foreign currencies are appreciating quickly – the value of the Euro has gone up 20% versus the dollar since March. But what’s more important than the current strength of our currency is that the rest of the world believes in our economy – that the government will stand by its financial commitments. We can view the fluctuation in the dollar’s strength as a kind of rebalancing, and an acknowledgment that policies, especially across economies, markets, and governments, change and are constantly in flux.

At the same time, it is important to think about the relationship of the dollar’s strength or weakness to the economy as a whole. A deliberate decision to “weaken” our currency can have a lot of positive benefits. It makes our exports – the products we make here and sell abroad – more affordable for foreign buyers. This is good for many companies that employee Americans to manufacture products for export. For example, it may make a car buyer in Europe choose to buy American since it costs less. In addition, non-U.S. products are more expensive here at home – perhaps leading consumers to buy American. The more American companies see sales increase, the better it is for our economy (e.g. jobs, income, etc.) Kind of complicated, yet very deliberate strategy and thinking.

So what does this mean for the TILE Community? In the immediate, you may want to start checking prices when you go to the store to buy a new pair of jeans or this year’s winter coat. Are the fancy European brands more expensive today than they were a few months ago? If the answer is yes, it could be because the dollar got weaker, the exchange rate shifted, and the cost to purchase non-U.S. products has gotten more expensive. With a weak dollar, you may think about buying American. And if you do, your purchase could get you a little more than a new pair of jeans: spending your money on American-made products stimulates local companies and encourages them to invest more, hire more, and produce more products in the future. Looking beyond what is happening in the store, what you do with your everyday purchasing power impacts the economy more than you think. So who knows? Buying a pair of locally-manufactured jeans today may not only save you a pretty penny, it might create a job for you in the future!

- Amy

Belgium but not Britain? Doesn’t Euro mean Europe?

Tuesday, October 27th, 2009

If you traveled through Europe before 2002, you probably had a lot of fun juggling the different currencies and their crazy exchange rates. You could spend 20 francs on a coffee in Paris and then in Italy it would cost 5000 lira – a bit confusing. But today, you’ll pay for that coffee in Italy and in France with the same bill: the euro.

Even though it’s called the euro after (you guessed it) Europe, its name is a little misleading. There are 45 countries in Europe but only 27 of them have joined the European Union. Out of those 27, only 16 use the euro as their official currency. That’s means only about 1/3 of Europe actually uses the euro! Why so few though?

There are several reasons why:

  1. You have to be a member of the European Union to adopt the euro as your currency. There are 18 countries who don’t belong, including Switzerland (which geographically is the center of Europe).
  2. You must follow strict financial guidelines to be allowed to have the euro; some countries (like Poland) have yet to meet them.
  3. Lastly, you have to want it. Some countries like Britain, Denmark, and Sweden don’t want the euro as their official currency. (If Mexico wanted us to jointly adopt the same currency, we probably would say no as well because of the effect Mexico’s weaker economy would have on our own.)

As Europe continues to loosen the national borders that divide it, the Euro will continue to be adopted by more and more countries. Probably soon, you won’t remember what it was like to carry 20 different currencies in your pocket while visiting only one continent.

Exchange Rates are…

Friday, October 23rd, 2009

Exchange rates are the value of one currency in relation to or expressed in another currency. For example, the exchange rate of the U.S. Dollar to the Euro might be $1.43. That means that every one Euro equals 1.43 U.S. Dollars.

The Euro is…

Monday, August 17th, 2009

The Euro is the monetary unit of the Eurozone, including Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. Basically, it is the currency used by the majority of the European countries and if you were travel to Europe, you would exchange your U.S. Dollars for Euros in order to make purchases.

Cash is…

Monday, August 3rd, 2009

Cash is hard currency – money you can hold in your hands. Some businesses don’t accept credit or debit cards, so it makes sense to have some cash on hand if you’re passing through an unfamiliar place.