Helen asks…
Why has the USD fallen so much to the Czech Koruna?
The conversion rate between the Koruna and the dollar was around 26 crowns to the dollar about 18 months ago. Now it is flirting with 20 crowns to the dollar while the Euro is weakening. Why is this occuring and how can one benefit from this?
USD vs Koruna vs Euro:
http://finance.yahoo.com/charts#chart4:symbol=usdczk=x;range=5y;compare=eurusd=x;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
Angus Brown answers:
This started all after 9/11, before this event, the ratio was $1=40 CZK, as the political situation started deteriorating in the USA, and the actions of other issues have started…Iraq, oil drop, Katrina…the value went down. Also Czech Republic joined EU and actually got a lot better now. But do not be sad, this has a positive impact on US economy, European investors will be buying more from the USA, because it will be cheaper than European products.
Nancy asks…
conversions, dollars to euros?
does anyone know what the exchange rate is from dollars to euros?
Angus Brown answers:
1 U.S. Dollar = 0.74649149 Euros
$1 = euro0.75
Paul asks…
I have a question about the Euro vs Dollar?
As everyone knows, we are currently experiencing a global financial crisis. The Euro is not doing well, nor any currency for that matter.
However, I’m curious about the conversion rate between the Euro and the Dollar.
Currently, 1 dollar is worth .76 Euros (as of 01/31/2012).
Does this mean that the Euro is stronger than the Dollar? If so, why are we hearing about the Euro so much and about how poorly it’s doing?
If it’s stronger than the Dollar, why is the Dollar still the world’s reserve currency?
Just trying to gain some insight on this matter. Anyone with knowledge on this is greatly appreciated.
Thank you!
Angus Brown answers:
If US$1=1Euro,it does not mean that both countries are doing well. For example, Canada and Australia have better performance economically than the US even when their dollars are approaching a parity value.The Euro has had issues recently because it has fallen from $1.4 to about $1.2 an Euro .The US dollar gets weaker because it has been about 40% lower value than in 2008.The Yen gets stronger because it is up to 76 Yen from 82 Yen a dollar before Tsunami.The dollar has still a status quo in the world trade and investment because it has been used as a medium of exchange and reserves.The Euro has been used mostly for intra-trade in the Euro zone itself.
Charles asks…
Is the US dollar depreciation policy helping to pay down the 14.5 trillion USD national debt more quickly?
I’m looking for feedback on the current depreciation of the USD (depreciation as opposed to devaluation given that we are a free floating market currency traded against other world currencies).
My understanding is that the depreciation is occurring indirectly via inflation.
This is occurring primarily because:
The Fed is effectively printing more money via the printing press and was engaged in QE2 whereby they bought treasuries (IOU’s) in the open market and introduced more money supply into the system.
All the new currency in the system effectively depreciates the dollar against other world currencies such as Euro, Sterling and Yen, but not the RMB as the RMB is for all intensive purposes pegged to the dollar within a 5% fluctuation band.
The consequences of this action should result in US company export improvement as US goods become more competitive, and their overseas sales in Euro/Yen/Sterling are repatriated back to US. In short, people believe this will stimulate economy via an improvement in Aggregate demand and improve job growth rates etc…
But in terms of our 14.5 trillion USD national debt, is this currency depreciation policy actually improving our existing notional debt level?
Thinking about it:
1. US domestic inflation should make the real rate of return negative thereby reducing the FEDS interest payment obligation on treasuries. Although, I believe a lot of the treasury IOU’s have inflation adjustment mechanisms built into their rates now?
2. The QE2 policy of buying treasuries in the open market pays down existing debt more quickly.
Are we using higher value foreign currency to pay down debt at a quicker rate? Every foreign unit of currency now has more purchasing power against existing USD denominated debt?
I also realize that foreign holders of our debt aren’t exactly happy about the whole situation. For example, if the UK government had 100 billion of US treasuries it’s now approximately worth 60 billion sterling at expiration using today’s FX conversion rates instead of 75 billion last year. So in other words if the Fed retires this debt today there should be a benefit to paying it back using foreign currency?
On the other hand the Chinese as one of our largest creditors shouldn’t be that unhappy as their currency is literally pegged so I’m not convinced that the dollar depreciation policy is impacting them other than by adding to their existing inflation concerns…
Angus Brown answers:
Not familiar with all of the terminology used but I’ll give you my opinion on the subject.
In a broad sense, a depreciating dollar should make it easier for the US government to pay off its debt. By increasing the money supply we’re effectively decreasing the value of the debt. Let’s put this into a simple equation:
Let A=debt owed (in US dollars, constant), V=value of US debt (no units), M=money supply (in US dollars). We have:
A = VM
That is, the value of the debt and the money supply are inversely proportional to each other. The situation that is currently happening is that the money supply is increasing (Fed is printing more bills). Assuming that the debt amount is constant (not true but for a specified amount of debt this would be true and that’s what we want to look at) this leads to a decrease in the value of the debt, hence making the debt easier to pay off.
Another way to view this is that the US government could pay off the entire debt right now by simply printing $14.5 trillion. However such a drastic increase in the money supply would make the dollar worthless and would cause problems far worse than carrying around debt.
As for the Chinese they don’t want the dollar to depreciate since they have so much invested in dollar-backed securities (US treasuries). Assuming the Chinese want to be paid back eventually they’d want to be paid back with a higher valued currency rather than a lower valued one because that allows them to purchase more goods from countries other than the US with the same amount of dollars.
Donald asks…
International banking?
I was considering converting a large sum of money into the Euro and investing it in a high yield CD in Europe. I here that annual yields from CDs in Europe are higher than the they are here. Also I figure that the Euro has consistantly outperfomed the dollar so that it should be a safe conversion rate getting my money out. Has anyone heard this to be true?? Are there any pitfalls that I could fall into?
Angus Brown answers:
CD’s are American products…you will find products available in Europe are similar but not exactly the same. Depending on the amount you have available you should be able to secure a 5 to 10% pa rate. I wouldn’t bet on the Euro continuing to do better than the Dollar though. The US Dollar is now one of the lowest valued currencies in the world and the Euro is one of the highest. Most commentators are pegging the Euro to sink this year. Sterling is an over valued currency as well.
So you can do it, but it’s not a sure fire way to make money. The biggest problem you are likely to face is providing sufficient identification when you open your account with whatever European bank you chose.
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