By: gAberaham sLinkcolin, Russian (s.i.c) President and Illuminati Swim Team captain and Know Nothing Digest contributor.
Looking at the graphs below we can begin to gain an understanding of the month to month trade of peso, yen, euro for dollar from points in 2008 to this point in 2018. From the graphs, we can see the period for Americans to take a cheap European vacation is coming to a close. China seems to be attempting the re-establishment of its pre-global financial crisis Yuan exchange value.
When looking at the exchange rates and the pressures put on them to maintain value levels through and in spite of trade, we should remember the pull toward a country’s balance of payments experienced in economies throughout the globe. The balance of trade can be visualized as the complex balancing act that it is by holding in mind that the foreign exchange market is not in any central location, but is the summation of a multitude of banks acting as dealers for traders who exchange currencies at these various bank locations. These locations are considered the retail part of the foreign exchange market. Much of the exchange that takes place on the foreign exchange market is done by firms exchanging currencies to conduct business transactions or to finance these transactions or to insure against currency devaluation at a later stage in an ongoing business transaction (Pugel, p.393, 2016.) The currency valuation is also manipulated by monetary officials buying and selling currencies to keep their country’s currency value in the official fixed price range.
In the foreign currency exchange all countries either have floating or fixed exchange rates. The floating rates are market driven, while the fixed rates are controlled by governments and financial institutions to vary in value in a narrow band around a fixed value determined by these authorities (Pugel, p.405, 2016.)
Analyzing the currency exchange rate of the Mexican Peso, we see that the average conversion rate over the past 10 years was 14.31. Over the past 12 months the spot rate for currency exchange for the Mexican Peso was 18.68. The rise in Mexican Pesos to US Dollars exchange rate over the past 12 months, when compared to the 10-year average rate of the Mexican Peso to the US Dollar, tells us that the long-term trend in USD/MXN is down, although still with a weaker Mexican Peso against the US Dollar despite the rise of the Mexican Peso’s value.
We will begin with the exchange rate of the yuan by noting that the average conversion rate over the past ten years for the Chinese Yuan was 6.52. Over the past twelve months the average conversion rate for the Chinese Yuan was 6.72. By comparing the average conversion rates over the past ten years of the Chinese Yuan with the average conversion rate over the past 12 months we can determine that the long-term USD/CNY trend is arguably flat (Forecast Chart, 2018.)
Lastly, we see average conversion rate for the Euro over the past ten years was 0.79. Over the past 12 months the average conversion rate of the Euro was 0.88. By comparing the average conversion rates over the past ten years of the Euro with the average conversion rate over the past 12 months, we can determine that the long-term USD/EUR is down, weakening the Euro against the dollar.
These graphs not only show the long-term patterns discussed earlier, but the effects of emerging economies engaging more fully in the more developed economies’ markets. The month to month value fluctuations are often caused by investors hedging their transactions through covered international investment (Pugel, p.429, 2016.)
• OFX, 2018, Forex historical exchange rates, https://www.ofx.com/en-us/forex-news/historical-exchange-rates/
• Federal Reserve, 2018, https://www.federalreserve.gov/datadownload/Chart.aspx?rel=H10&series=9501250ca603af0e256e3907909dfda7&lastobs=&from=01/01/2008&to=05/31/2018&filetype=spreadsheetml&label=include&layout=seriescolumn&pp=Download
• Forecast Chart, 2018, http://www.forecast-chart.com/usd-chinese-yuan.html
• Pugel, T., 2016, International Economics 16th edition
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