Currency

1. International Trade Currency Spencer “Del Secksi Mahn” Milliner

2. This presentation is Dedicated to Mr. Nelms, Who taught me how to shatter Steel bars with my bare fists. Figuratively speaking, of course.

3. Exchange Rates • An exchange rate is the price one currency may be bought or sold for in another currency. • Exchange rates are necessary as companies and individuals may be required to use the currency of the country within which they are doing business or investing.

4. Foreign Currency Exchange • Currencies are bought and sold within the foreign exchange market, also known as the FX market. • The foreign exchange market is a worldwide network of traders which operates twenty-four hours a day. • The FX market is the largest market in the world.

5. FX Market Participants • Banks and other financial institutions comprise the largest section; they earn profits from buying and selling currencies. • Brokers act as intermediaries between financial institutions and charge commissions on the transactions they arrange. • Customers who require foreign currency for business or investments. This includes individuals who need currency for purchases abroad. • Central banks sometime participate in the FX market to try and influence the value of their currencies. When currencies are purchased by financial institutions or other traders in large quantity, they are bought at a wholesale price. When an individual exchanges currency at one of these institutions, he is usually offered a less favorable exchange rate and the institution profits.

6. Foreign Exchange Rates • As exchange rates fluctuate, engaging in FX market transactions is risky. • There’s always the chance that if you wait on exchanging currencies (such as the US dollar to the Japanese yen) your currency (dollars) may become stronger against the currency you are exchanging for (yen) and you profit. In this situation, the dollar is considered to have “risen” or gained value against the yen. However, the opposite is also possible, in which case your dollar would be able to buy less yen, and thus “fallen.” • When one currency can buy an increasing amount of another currency, it is considered “strong” against that currency. When a currency can buy a decreasing amount of another currency, it is considered “weak.”

7. Oh My Another Slide • Having a strong currency allows for cheaper imports, as the cost of foreign goods drop. • While a strong dollar can buy Americans foreign goods at a lower price, it makes American goods to foreign customers relatively more expensive. A strong dollar can hurt businesses who rely primarily on exporting their goods and services. • With this in mind, it would seem safe to assume that a weak dollar would increase a America’s exports, as nations with a stronger currency would purchase more American goods, improving America’s balance of trade. Right? Right?

8. Oh My Another Slide Cont. Well, the answer is sorta. Although a weakened dollar will spur more exports, a tricky fellow by the name of the J-curve prevents this from immediately helping the trade balance. The remainder of this slide is here to prepare you for the following slide, because it’s just that shocking. You’ll get it.

9. The ElectricSlide(it was a pun) • Most orders on imports and exports are taken several months in advance. • When a currency’s value drops, the number of imports stay about the same, but the cost of these imports rise in comparison to the home nation’s currency. • The value of exports tend to remain constant. • This will cause the balance of trade to worsen until the volumes of imports and exports adjust to the new rate.

10. Methods of Exchange • Fixed Exchange Rates • Floating Exchange Rates • Hybrid Exchange Rates (This image has significant economic… significance)

11. FREAKY FRACTAL FRAME • WHOA FREAKY • Hello Mr. Nelms • Suma-bots • CLICK AGAIN ELLIS!!11 • Oh my this shouldn’t be here 

12. Fixed Exchange Rates • Fixed currencies are currencies for which the government maintains a fixed value. • Fixed rates do not fluctuate from day to day. • A government that decides to keep their currency fixed must work to maintain it. • Fixed exchange rates are usually used by developing countries with immature economic systems. (Angora rabbits are mysterious fellows, unlike fixed exchange rates) • This system prevents inflation, however if the currency’s real market value differs from the fixed amount, it can spell disaster!

13. Fixed Exchange Rates Cont. • Fixed exchange rates played a much larger role when currencies were tied to gold. • Exchange rates were determined by the amount of gold a currency could be exchanged for, AKA the gold-exchange standard. • The United States abandoned the gold-exchange standard in 1971 under the Nixon administration, and adopted floating rates. • Although some countries still have fixed exchange rates, most have turned to floating or hybrid.

14. Floating Exchange Rates • Floating exchange rates are determined by supply and demand. • Most countries with stable economic markets have floating currencies. • Floating exchange rates are usually more efficient. • Floating currencies are subject to inflation. (Felines are fickle beasts, as are floating exchange rates)

15. Hybrid Exchange Rates • Many countries utilize a mix of floating and pegged exchange rates. • Governments peg the exchange rate of their currency to another (such as the dollar), which does not change from day to day. • The government periodically reviews the pegged rate, and makes adjustments reflecting shifts in market value. • Other actions by the government (such as changes to national interest rates or import tariffs) can also change the currency’s value.

16. Super Secret Cute Slide

17. Wait a Minute! You Never Told Us What Specifically Affects Exchange Rates!I would have gotten away with it too, if it wasn’t for you meddling kids. • Exchange rates respond to a number of events, such as business cycles, tax laws, stock market news, expected inflation, political developments, central bank policies, among other things. • The currency of a country with a growing economy, price stability, and a wide selection of goods would be in higher demand than that of a country suffering from inflation, has few profitable exports, and political unrest. • There are many other reasons that a particular currency may be strong, such as the country may have high interest rates giving foreign investors increased returns or news of instability in other countries may move investors into their currency, in an attempt to avoid risk.

18. European Union • The European Union is an international organization of democratic European Countries. • The EU was formed after World War II, both as a means of prevention for future conflicts and to ensure European economic prosperity. • The EU has grown from its six initial members to these twenty-five: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, United Kingdom, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Chocolatonia. • European integration - countries delegate sovereignty on specific matters to common institutions within the EU, which can then democratically create decisions.

19. The Euro • On January 1, 2002 the euro became the single currency of twelve of the states within the European Union, specificallyBelgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, and Chocolatonia. • As 144 billion euros were put into general circulation by the central banks of the participating countries, national currency notes and coins were removed from circulation. • February 28, 2002 marked the last date that the national currencies would be considered legal tender, and the switch to the Euro was complete. Former national notes and coins can still be exchanged for Euros for an extended period of time. • It has become the second largest currency in the world, only behind the US dollar.

20. The right man in the wrong place can make all the difference in the world. So wake up, Mr. Nelms. Wake up and smell the ashes.

21. High above the lesser European Union members, Greater Chocolatonia floats among the clouds