Foreign Exchange Paper
A country's currency is a gauge of how well that country's economy is doing. "Currently the United States has a 3% real rate of return. The short-term interest rate is 5.25% and the inflation rate is 2.25% based on the core-rate from the GDP numbers" (Kordell, 2008).
If one compares our real rate of return with other countries; Canada +2.50, Britain +2.50, Euro FX +0.25, and Japan +1.15 one can see that money tended to flow towards the U.S. over the past several years ever since the monetary policy was changed and interest rates in the U.S. started to rise. (Kordell, 2008)
The American dollar has been the world's principal currency since the end of World War II (Wong & Khan, 2006). "Following the breakdown of the Bretton Woods system in 1970, the US dollar has been the benchmark for other national currencies. No other currencies, the deutsche mark, yen or the pound sterling, have come to being a close contender for the dollar's international role" (Wong & Khan, 2006).
"An international currency can be defined as a currency that is used by residents outside the country of issue. It performs the same functions as that of any other national currency- as a medium of exchange, store of value, and unit of account" (Wong &Khan, 2006). Hartmann and Issing (2002) cite the following factors as key to determining the choice of international currency: (1) the size and strength of the domestic economy (2) the depth, breadth, liquidity and degree of openness of the domestic financial markets (3) the convertibility of the currency (4) historical bias. The euro has made considerable developments as an global financing currency. "Recent years have seen an increase in the net issuance of euro-denominated bonds over that of the dollar" (Wong & Khan, 2006).
Table 1 compares the relative economic size and strength of the US, Euroland, and Japanese economy.
United States Euro Japan
Population (million) 270 291 126
Employment (million) 131 114 65
GDP ($bn) 8510 6471 3780
Financial Assets 33828 16648 12414
% of GDP 11.9 16.1 10.5
Share of world exports (%) 16.5 19.0 8.5
Macroeconomic performance
CPI Inflation (%) 2.2 1.1 -0.3
GDP Growth (%) 4.0 2.0 0.5
Unemployment Rate (%) 4.1 10.0 4.6
TABLE 1: THE EURO AREA COMPARED WITH US AND JAPAN
It can be clearly seen that the euro compares positively to the US in most aspects. Population size, employment levels and the value of GDP are fairly close for the Euro area and US and the euro area outperforms the US in terms of the percent of GDP.
When the first Europeans settled in what would become the United States, the need of a currency to make trade easier rapidly arose. Before the US Dollar as we know it, the American Colonies went through several currency systems. Since most settlers were from the United Kingdom, the colonies were under the authority of the crown, and used the British system of pounds, shilling and pence. The use of Spanish dollars was also very widespread, and the name of the country’s official currency comes from this common practice. While the first trades took place with British or Spanish currency or commodities, the Massachusetts Bay Colony was the first to issue some paper currency, which it denominated in British terms at first, and then in both British and Spanish terms. For the first time in the colonies, a colonial authority delivered a piece of paper, regardless of the Crown’s opinion, which people trusted would be worth money. This was therefore the first fiat currency of the colonies, which would later become the United States of America. In this paper, we will explore the evolution of fiat currency in the United States, and the process that led to the adoption of the US Dollar still in use today. It will cover the period from 1690 to 1863, separated in three parts that correspond to currency evolution: Colonial currency from 1690 to 1775, the Revolution and the first banks from 1775 to 1860, and finally the US Dollar, the Legal Tender Act and the National Banking Act from 1860 onwards.
Just like a corporation issues shares of stock to function as a productive entity, a country has to issue currency in order to fund its operations. This currency is the lifeblood of a nation, creating wealth for its citizens by fostering economic development and providing public infrastructure and services. In a true democracy, the government is owned by the citizens and operated by representatives of the population as a whole, who control and more importantly regulate the issuance of this currency. This is a critical point to remember.
Strong is good. Weak is bad. These generalizations sound simple enough, but they can be very confusing when come to money. Is a "strong" U.S. dollar always good? Is a "weak" dollar always bad? Understanding of it is a necessary in marketplace. The term such as “Strong” and “weak” dollar is a “hot topic” which always bandied about by economist on a daily basis and also public. This issue is so important to almost every one. It seems like part and parcel of people who very concern about currency likes investors, economist, foreigners who study or working in the United State and so on.
Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth, as well as Real Gross Domestic Product (GDP). Real GDP is so called because the effects of inflation and depreciation are accounted for in the figures. The state of the economy is important both on a micro and macroeconomic level.
The article, “U.S. Economy slows down; Europe is on the Upswing,” shows that Europe will catch up to the United States in no time. According to The New York Times, the unemployment rate for European Union drop from ten percent to 8.7 percent in less than ten years; that is a growth of 2.3 percent. European markets have become more open and competitive and European companies have follow many Americans practices to help deliver better performance. European governments are lowering taxes, at least modestly. Wage increases have slowed to a edge and labor markets have become more flexible, as companies evade traditional job protection rules by hiring part-time and temporary workers.
The Gold Standard, 1890-1926.” Journal of Global History 3 (2008), 313-335. Eichengreen, Barry. A. Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press, 1996. Galbraith, John.
The end of the World War II marked the beginning of a new era for the world economy. The Bretton Woods System refers to an agreement made at an international conference between 44 nations in 1944 at Bretton Woods, New Hampshire, United States of America (hereby U.S.) on the 22nd of July 1944. It was aimed at maintaining stability in the monetary system in the post World War II period. “In an effort to free international trade and fund postwar reconstruction the member states agreed to fix their exchange rates by tying their currencies to the U.S. dollar.” The fundamental of this system was liberalizing trade policy and promoting free trade. The U.S. dollar was linked to gold as a show of its dependability in the eyes of the rest of the world, $35 equaled 1 ounce of gold. They followed an adjustable fixed exchange rate (1% band). It set up the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which is a part of the World Bank today. Member nations monetary contributions to the setting up of these institutes determined their number of votes as well as their economic prowess
The value of the US dollar relevant to other currencies is a major consideration for the Federal Reserve. If they prevent large changes in the value of the dollar, firms and individuals can comfortably plan ahead to purchase or sell goods abroad.
Walker, Bruce. "Euro Likely to Keep Losing Value." The New American. The New American Magazine, 7 July 2010. Web. 23 May 2011. .
Here is the graph of the value of Bitcoin since its creation, we define the value is globe Bitcoin price index(GBX) – Bitcoin(BTC) to United States Dollar(USD).
Paper money is more complex. From 1900 through 1971 (with the exception of during World War I), the US dollar was backed by gold, meaning its value was legally defined by a certain weight of the metal. That ended in 1971, when Richard Nixon shocked the world by breaking the link to gold and allowing the dollar’s value to be determined by trading in the foreign exchange markets. The dollar is valuable not because it’s as good as gold, but because you can buy goods and services produced in the United States with it—and, crucially, it’s the only form the US government will accept for tax payments. Among the Federal Reserve’s many functions is allowing the issuance of just the right quantity of dollars—enough to keep the wheels of commerce well greased without slipping into a hyperinflationary crisis.
The first reason is the issue of euro. Considering a strong correlation between money and collective national identity, money can be used as an effective tool in facilitating the integration of diverse identities (Risse, 2003). Actually, the principal goal of the issues of euro is to promote the unification of the monetary system and foster integration of the economy in order to ease economic activities betwee...
There is one thing that differentiates the international business with the domestic business where it uses more than one currency in the commercial transaction. For example, if a company from British purchases some goods from a company from US, the international transaction will require for exchanging pounds and U.S. dollars which involve the foreign exchange market. In the foreign exchange market, any country that wish to do business with foreign country, the country need to convert their domestic currency into the foreign currency that they are wish to cooperate with through foreign exchange.
(FIX) Living in the world today, as a global society, we have become increasingly connected and continue to do so with each passing year. Individuals across the globe find it has become significantly easier to transport goods/services from country to country.
Daily in the USA about 38 million banknotes of various face value for total amount about 541 million dollars are issued (Facts about USA money).Dollars involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off of competitors of the USA in foreign markets. At the same time import to the USA owing to effect of a rise in prices restrains. Thus, for the USA changes in the exchange rate of dollar anyway bring benefits and advantages.Reduction of leading positions of the USA in world economy is assisted by the international role of dollar which remains the main reserve and settlement means in world monetary system. Foreign currency reserves of the central banks of other countries for 61% consist of dollars, nearly 2/3 calculations in world trade are carried out in dollars; the dollar serves as a measure of value of many important goods (for example: oil) in the world market; in dollars 3/4 international bank crediting is made (Aleksandr Popov). Changes in the exchange rate of dollar involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off...