Download Currency - SCClaydon

Currency
• Exchange rate – the amount of currency in
relation to the currency of another country
• Currency fluctuations can act as a trade
barrier as well
• Canadian $ is most often quoted against
the US $
• Ex CAD $1.00 = USD $0.89
• How much would USD $1.00 = CAD?
• Setup the equation:
• CAD$1.00
CAD$??
------------- = ------------USD$0.89
USD$1.00
= CAD $1.12
• Historically our $ has been worth less than
the US$ but in recent years it has been the
opposite
• Only in the last few months has our $
dropped lower than the US again
• Lowest recent value was in 2002 when
CAD$1.00 reached US$0.67
• On average, $100 billion of CAD is traded
every day and it is the 7th most traded
currency in the world
Winners of High CAD$
• Importers – anyone
(consumers/companies) buying from the
US can get things cheaper
• Canadian travellers – less expensive to
travel to the US…especially Disneyworld!
• Professional Sports Teams – most
canadian teams pay their athletes in US$
so a strong CAD$ makes their payroll
actually less expensive
Losers of High CAD$
• Exporters – when CAD$ is high, price of
Canadian goods is more expensive to
other countries, thus less is bought
– Between 2002 and 2006, 189,000
manufacturing jobs were lost as loonie soared
• Tourism – Many americans choose not to visit
Canada when CAD$ is high, hurting tourist
areas and events…even Hollywood films
prefer shooting in Canada and can be lost
• Can. Retailers – domestic retailers suffer as
Canadians will cross border shop or shop
using the internet to import products from
other countries
Factors affecting Exchange Rate
• Canada has a floating exchange rate
which means it is not fixed in regards to
other currencies
• Supply and demand dictate price…more
demand than supply leads to higher price
(currency revaluation) and vice versa
(currency devaluation)
• Factors:
– 1. Economic conditions in Canada such as
inflation rate, GDP and interest rates
• Inflation rate – low rate leads to investors
wanting CAD$ because of price stability
• Low unemployment and a strong GDP
signal a stable, healthy economy
• Interest rates – high rates attract investors
to Canada
• The more demand for CAD$ leads to
higher prices for it
– 2. Trading between countries – the more
exports a country has vs imports, the higher
demand for their $...called terms of trade
• 3. Politics – political stability of a country
affects the value of its’ currency
• Ex …look at Ukraine today
• 4. Psychological Factors – some currencies have
historical trends/faces…in times of int. upheaval,
the Swiss franc is seen as a safe/refuge currency
• US is also seen as safe and the Euro was…less so
today
• Stable currencies are referred to as hard
currencies as they are easily converted to other
currencies on world exchange markets
• Soft currencies such as the Russian ruble are not
as easily converted
Speculating
• Currency speculating involves buying,
holding or selling foreign currency in
anticipation of its’ value changing
• Lots of canadian companies quote their
prices in US$ to remove speculation from
the equation when dealing with US
customers/companies
Time Zones
• Last barrier to IB is simply the time of day
• Japan is 14 hours ahead of our time in Ontario
• IB is open 24 hours a day but depending upon
the medium you use, it can be a problem
• Indian employees at call centres must work all
night to answer western help calls
• Texts, emails, podcasts, reports can be
accessed anytime but may not get immediate
response or action
• Phone calls, Skype, face to face meetings get
immediate response but depend on time zones