Business_Spotlight_No_04_August__

• LANGUAGE FINANCIAL ENGLISH
  Ijd! H'
  ADA
  CAO
  ,
  CHINA CNV
  EXCHANGE RATES

:~ EURO EUR Die Handelsbilanz eines landes wird auch von Wechselkursen
beeinflusst. IAN MCMASTER erklärt Einzelheiten.

JAPAN JPV

,',
SINGAPORE SGO

-Ir HONG KONG

HKD

~.:- NEW ZEALANO

NZD

A

n exchange rate or foreign-exchange rale, Forex or FX

• is Ihe price of one currencv in 1eU!:ls: of another_ If
  the ~dollar exchange rate is $1.50, this means one
  British pound is worth one and a half US dollars.
  Exchange rales can be looked at from both sides. If the
  sterling/euro exchange rale is €1.1O tel is €1.1O), Ihe
  euro/sterling rate is CO.91 (€l is CO.91).
  There are two main types of exchange rates: f.!.Qa1i..og and
  ~. The exchange rates of floating currencies, such as the
  euro, dollar and pound, are determined by supply and de-
  mand on the torejgn-exchange markeIs. If a currency goes
  up, it aODrecjates; if it goes down, it deDrecjates.
  Fixed exchange rates are ones that governments hold at a
  particular value by buying or selling a nation's currency as
  necessary. For a long time, China held down its exchange
  rate at a fixed level against the dollar by selling yuan and buy-
  ing dollars. A ~ reduction in a fixed exchange rate is
  called a deyaluatjon; a one-off increase is a revaluation.

affec:t 5th. [J'fck.tl Auswirkungen auf etw. haben

appreciate IOl'pri:ficlIl an Wert gewinnen

~liiiCeOftiide 1,ba:IJn< JV 't rcld] Handetsbllanz

c:ornpetitive IkOln1'pcIJllv] wetlbewerbsfahig

competitiveness I kJn1 'pet Jt IvnOlS) WettbewerbslJhigkeil

currenc:y l'kAr.ln)il Wahrung

depreciate ]di'pri:Jicn I an Wert verlieren

devaluation Ldi:,va:lju'clf·n] Abwertung

domestic !d;)'mestlkj inlJndhsch

equalize $th. !'i:kwJI,uzl elw. ausgleichen

exchange rate IIk.s'tfclndJ reit] Wechselkurs

liUd lhkstj --fesHer Wechselkurs)

floatingl'rbotlo) frei schwankendC==--

foreign-ex<:hange market Oevlscnmar\(1

!,r~ Iks'tfetndJJn1u:ku!

nornin')' exchange rolle nominaler Wechselkurs

!.none-off Dmm·1 !,wAn rks'tfemdJ 'of) rc,:,',===~einmalis ~~;,;:;;;;;;;::~ __

other thing$ being equal unter sonst gleichen

10.03 ,On)z ,bi:IO 'i:kwJI] Bedingungen:...""",, __

purchasing-parity rate Kaulkratlparitatenkurs

~:[fJS'o ,paor:.ti rell)

~".';.''''~''''.'''

I

realet Wechselkurs

For people going on holiday abroad, the higher the value

of their domesljc currency, the better, This reduces the cost

of hotels, restaurants, etc. The exchange rate also ~ an

economy's international Irade. Ceteris paribus ("at her thjngs

beins eaual"), a lower exchange rale increases the price 01

imports (in the domestic currency) and reduces the price of

exports (in foreign cuneneies).

This increases the demand for the counlry's exports and

reduces the demand for its imports, wh ich improves a coun-

try's balance pt Irade. Bu! a lower exchange rate also in-

creases inflation via higher import prices.

A higher exchange rate will have the opposite effect, lead-

ing to fewer exports, more imports and lower inflation. The

US wanls China 10 allow its currency to appreciate, 10 in-

crease US exports 10 China and reduce US imports.

The idea of "other things being equal" is very important.

For example, jf Ihe pound falls against the dollar, British

Germany has reduced

its real exchange rate

in recent years as a result

of its very low inflation.

exports will become more comoetitjve compared 10 US goods

only jf Britain's Inflation isn', higher than that of the USo

There is a very important difference hefe between the

nomjnal exchange rate - the one given in the news - and

the real exchange rale, wh ich determines comoetjtiveoess.

For example. within Ihe Eurozone, Germany has reduced its

rea/exchange rate in recent years - and increased its com-

petitiveness - as a result of its very low (wage) inflation.

Another measure of a country's competitiveness is its ~

wejghted, or "effective", exchange rate. This is a weighted

average of its exchange rates against other currencies, based

on how much Irade is done with other economies.

To know whether a currency is overvalued or undervalued,

its curren! rate is olten comllared !o the purchasing-oarjty

IaUl, which woutd egualize the cost of tiving between states,

One simple exampte of this is the Big Mac index used by

The Economist. This calculates the exchange rates neces-

sary to equalize Ihe cost of a Big Mac. On Ihis index, the

currencies of Norway, Switzerland and the Eurozone are

overvalued, while China's yuan is undervalued. IJ

fAN MCMASTER is the editor-in-chief of BUSiness

Spotlight. You can read his blag on lopics relalmg 10

global business Oll WIVW.business-spotlight.delblogs

Conlact: i. [email protected]

4/2010