officejax currency trading information

Channel



Ad your free banner at www.AdViews.info

 

Hedging Foreign Exchange Risks


The exchange rate of the Macedonian Denar against the major hard currencies of the world has remained stable in the last few years. Because of the IMF restrictions, the local Narodna (Central) Bank does not print money and there are no physical Denars in the economy and in the local banks.

Thus, even if people want to buy Foreign Exchange in the black market, or directly from the banks - they do not have the Denars to do it with.

The total amount of Denars (M1, in professional financing lingo) in the economy is around 200,000,000 USD, according to official figures. This translates into 100 USD per capita. Thus, even if each and every citizen of Macedonia were to decide to convert ALL their Denars to Deutsch Marks - they would still be able to buy only 150 DM each, on average. These tiny amounts are not sufficient to raise the rate at which DMs are exchanged for Denars (=the price of DMs in Denars).

But will this situation last forever?

According to economic theory scarcity raises the price of the scarce commodity. If Denars are rare - their price will remain high in DM terms, i.e. they will not be devalued against the stronger currency. The longer the Central Bank does not print Denars - the longer the exchange rate will be preserved.

But a strong currency (the Denar, in this case) is not always a positive thing.

The Denar is not strong because Macedonia is rich. The country is in a problematic economic situation. The banking system is perilous and unstable. The reserves of foreign exchange are minimal - less than 30 million USD.

The currency is stable because of externally imposed constraints and an artificial manipulation of the money supply.

Moreover, a strong currency makes goods produced in Macedonia relatively expensive in outside, export markets. Thus, it is difficult for Macedonian growers and manufacturers to export. When they sell their goods in Germany, they get DM for them and when they convert these receipts into Denars - they get less then they should have if the Denar reflected the true relative strengths of the two economies: the German one and the Macedonian one.

They pay expenses (e.g.: salaries to their workers, rent, utilities) in Denars. These expenses grow all the time as true inflation grows (as opposed to the official rate of inflation which is suspiciously low) - but they keep getting the same amount of Denars for their produce and products when they convert the DMs which they got for them.

On the other hand, imports to Macedonia become relatively cheaper: it takes less Denars to buy goods in DM in Germany, for instance.

Thus, the end result is a growing preference for imports and a decline in exports. In the long term, this increases unemployment. Export is the biggest driving force in creating jobs in modern economies. In its absence, economies stagnate and dwindle and people lose their jobs.

But an unrealistic exchange rate has at least two additional adverse effects:

One - as a rule, various sectors of the economy borrow money to survive and to expand.

If they expect the local currency to be devalued - they will refrain from taking long term credits denominated in hard currencies. They will prefer credits in local currency or short term credits in hard currencies. They will be afraid of a sudden, massive devaluation (such as the one which happened in Mexico overnight).

Their lenders will also be afraid to lend them money, because these lenders cannot be sure that the borrowers will have the necessary additional Denars to pay back the credits in case of such a devaluation. Naturally, a devaluation increases the amounts of Denars needed to pay back a loan in foreign currency.

This is bad from both the macro-economic vantage point (that of the economy as a whole) - and from the micro-economic point of view (that of the single firm).

From the micro-economic point of view short term credits have to be returned long before the businesses which borrowed them have matured to the point of being able to pay them back. These short term obligations burden them, alter their financial statements for the worse and sometimes put their very viability at risk.

From the macro-economic point of view, it is always better to have longer debt maturities with less to pay every year. The longer the credits a country (single firms are part of a country) has to pay back - the better its credit standing with the financial community.

Another aspect: foreign credits are a competition to credits provided by the local banking system. If firms and individuals do not take credits from the outside because they fear a devaluation - they help to create a monopoly of the local banks. Monopolies have a way of fixing the highest possible prices (=interest rates) for their merchandise (=the money they lend).

Access to foreign credits reduces domestic interest rates through competition with the local credit providers (=banks).

It would be easy to conclude, therefore, that it is an important interest of a country to be open to foreign financial markets and to provide its firms and citizens with access to sources of foreign credits.

One important way of encouraging people (and firms are made of people) to do things - is to allay their fears. If people fear devaluation - a responsible government can never promise not to devalue its currency. Devaluation is a very important policy tool. But the government can INSURE against a devaluation.

In many countries of the West, one can buy and sell insurance contracts called forwards. They promise the buyer a given rate of exchange in a given date.

But many countries do not have access to these highly sophisticated markets.

Not all the currencies can be insured in these markets. The Macedonian Denar, for instance, is not freely convertible, because it is not liquid: there are not enough Denars to respond to the needs of a free marketplace. So, it cannot be insured using these contracts.

These less privileged countries establish special agencies which provide (mainly export) firms with insurance against changes in the exchange rates in a prescribed period of time.

Let us examine an example:

The firm MAK buys combines and tractors from Germany. It has to pay in DMs.

An international development bank offered to MAK a loan to be paid back in 7 years time in DM.

Today, MAK would be so afraid of devaluation, that it would rather pay the supplier of the equipment as soon as it has cash. This creates cash flow problems at MAK: salaries are not paid on time, raw materials cannot be bought, production stops, MAK loses its traditional markets - and all in order to avoid the risks of devaluation.

But - what if the right government agency existed?

If governmental insurance against devaluation existed - MAK would surely take the 7 year loan. It would take, let's say, 10 million DM.

MAK would apply to the governmental agency with its business.

It would pay the government agency a yearly insurance fee of 2.5% of the remaining balances of the loan (as it is amortized and reduced with each monthly payment). This would be considered a proper financing expenditure and the firm will be allowed to deduct it from its taxable income.

The government will provide MAK with an insurance policy. An exchange rate (let us say, 30 Denars to the DM) will be stated in the policy.

If - at the time that MAK had to make a payment - the rate has gone above 30 Denars to the DM - the government will pay the difference to MAK in DM. This will enable MAK to meet its obligations to its creditors.

MAK will be able to cancel this insurance at any time. If, for instance, it suddenly signs a major contract with a German buyer of its products - it will have income in DM which it will be able to use to pay the loan back. Then, the government insurance will no longer be needed.

This very simple government assistance will have the following effects:

  • It will encourage firms to obtain foreign credits.
  • It will create competition to the local banks, reduce interest rates and encourage a wider and better range of services offered to the public.
  • It will encourage foreign financial institutions to give loans to local firms once the risk of re-payment problems due to a devaluation is minimised.
  • It will place Macedonia in the ranks of the more developed and export oriented countries of the world.
  • It will facilitate activities with longer term credits (such as modernization of plants for which longer terms of payments are required).

As time goes by, the private sector may step in and supply its own insurance against devaluation .

Insurance firms the world over do it - why not in Macedonia which needs it more than many other countries?

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com


TODAYS NEWS BY OFFICEJAX FREE ADVERTISING AND AD EXCHANGE SOLUTIONSMORE RESOURCES updated Fri. October / 19 / 2018

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news


MENAFN.COM

Foreign currency trading firm wins appeal
MENAFN.COM
(MENAFN - Arab Times) 15-year jail to acquittal in drugs case. KUWAIT CITY, Oct 17: The Court of Appeals upheld the verdict issued by the Commercial Circuit of the Court of First Instance Court which dismissed the lawsuit filed by a Kuwaiti woman ...



Professional Traders Academy Launches Forex and Crypto Currency Trading Courses in Delhi
PR.com (press release)
New Delhi, India, October 17, 2018 --(PR.com)-- The Patel Nagar (Delhi) based training institute “provides right amount of education to people who want to make a career out of trading in Stock Market” and “pledges to make each and every student capable ...



The National

Libya curtails black market with 183% currency trading fee
The National
Libya's UN-backed government has imposed a 183 per cent fee on foreign currency transactions in an effort to narrow the gap between the official and black market rates that's squeezed liquidity and fueled inflation in the North African nation. The move ...

and more »


Akumin Inc. Starts Dual Currency Trading with Canadian Dollar Listing Under AKU Symbol
Canada NewsWire (press release)
Canadian currency trading will commence with the opening of the markets today. The dual currency listing was completed in order to accommodate requests by Akumin's Canadian investors. Akumin will continue to report its financial statements in United ...

and more »


LeapRate

Argentex revenue up 24% in 2018 as currency trading hits £7.8 billion
LeapRate
FCA regulated provider of foreign exchange services to corporate and private clients across EMEA, Argentex LLP (or 'the Company'), has just reported its results for the twelve months ended 31 March 2018. Argentex saw another year of strong growth ...

and more »


DEALSTREETASIA

Blackstone said to mull sale of Thomson Reuters' currency trading unit
DEALSTREETASIA
Blackstone Group LP, the soon-to-be owner of Thomson Reuters Corp's financial-and-risk arm, is weighing a sale of FXall, a currency trading platform, according to people familiar with the matter. The business could fetch more than $3 billion, said one ...
Blackstone Weighs Sale of Thomson Reuters's FXall UnitBloomberg

all 4 news articles »


Smartereum

Tron (TRX) Backs up Alibaba as It Considers Creating Digital Currency Trading Platform
Smartereum
In an effort to enhance the financial structure and ecosystem of Alibaba, the firm is considering creating a digital currency trading platform. According to internal sources, the Tron Foundation is solidly behind Alibaba in its effort to build a crypto ...
TRON (TRX) price, charts, market cap, and other metrics | CoinMarketCapCoinMarketCap
Justin Sun on Twitter: "Based on community consensus, #TRON will be upgrading to Odyssey 3.1 at 8pm SGT. The ...Twitter
TRON CEO Justin Sun on Blockchain and ScalabilityInvestopedia

all 116 news articles »


Genesis Global Trading Releases Inaugural Digital Asset Lending Snapshot
PR Newswire (press release)
NEW YORK, Oct. 18, 2018 /PRNewswire/ -- Genesis Global Trading, an industry pioneer and leader in over-the-counter digital currency trading, today released its inaugural Digital Asset Lending Snapshot. The first-of-its-kind report analyzes ...

and more »


Smartereum

Tron (TRX) To Get a New Trading Pair – TRX/BNB – On Binance Exchange
Smartereum
Binance – one of the most popular digital currency trading platforms in the world – recently announced that it will be adding a new pair for the trading of Tron (TRX) with their native digital currency – the Binance Coin (BNB). According to the ...

and more »


Ryo Currency Trading Down 18.1% Over Last 7 Days (CRYPTO:RYO)
Fairfield Current
Ryo Currency (CURRENCY:RYO) traded 2.5% higher against the U.S. dollar during the 1 day period ending at 21:00 PM E.T. on September 15th. One Ryo Currency coin can now be purchased for $0.0937 or 0.00001427 BTC on cryptocurrency exchanges ...

and more »

Google News

     Large inventory of office cubicle and partitions walls for sale in Northeast Ohio

     Find home remodeling contractors Akron Ohio

Search for estate sales in Akron Ohio

Click here to
OfficeJax free ad space available here improve pagerank with a free one way backlink

 

Find used office equipment in Ohio at www.OfficeJax.Has.It

www.Akron.Has.It

Find the best fleamarkets at www.FleaMarketWorld.Has.It

Find electric powered vehicles at www.NoGas.Drives.It

Flea Market World

Free Automatic Link Exchange

Akron City directory

Find homes for rent
in Akron Ohio
www.homes4rent.has.it

Anonymous and Confidential U.S. Mail Drops - No ID Required reship worldwide

Click here to
post your free classified ad here free advertising and one way backlink
Free one way backlink

 

officejax surplus office furniture outlet Akron, ohio

[Back to Top]

 

auction news and listings for Akron, Ohio

Akron crafts and hobby news center

Akron Ohio pet news

Advertising and promotions Akron, Ohio

The Akron blogging news center

Akron Ohio web site design news

best tips and home remedies

Akron Mortgaging and refinancing

Akron currency trading

Page Ranking Icon

 

Home | Site Map
© 2012 - 2018 All Rights Reserved

 

currency trading forex currency trading online currency trading foreign currency trading currency forex learn online trading currency forex online trading currency day trading currency trading system forex currency trading system currency privateforextrader.com trading currency exchange trading e currency trading currency foreign privateforextrader.com trading book on currency trading currency trading broker currency trading software day trading forex currency currency ireland trading online currency trading system currency future trading day trading for the currency market online foreign currency trading fx currency trading forex currency trading beginner forex training course currency trading currency day system trading currency trading course 4x currency trading currency trading tutorial currency trading information foreign currency exchange trading currency global in market trading started in currency trading commodity  currency trading trading the global currency market international currency trading course in currency trading automated currency system trading foreign currency trading software currency trading strategy currency forex learn trading currency make money trading currency trading signal currency option trading currency forex market trading currency trading made easy chart currency trading currency trading  tip currency foreign forex trading currency demo trading currency trading forex spot rate learn currency trading basics currency trading currency trading for beginner forex currency trading broker currency electronic trading currency game trading currency exchange foreign  forex trading interbank currency trading practice currency trading currency forex fx software software software trading free trading currency guide tool online currency forex trading currency news trading best currency system trading currency trading account currency currency forex forex learn online online trading online currency trading strategy currency trading platform currency forex learn online online trading trading currency trading training company currency exchange foreign trading company currency forex trading currency euro trading currency forex trader trading automated currency trading currency foreign system trading currency market trading currency option trading system currency trading seminar business currency currency home internet trading trading canada currency trading spot currency trading currency exchange rate trading currency forex pair trading using vantagepoint currency network neural trading boards currency forex trading how to start currency trading currency trading australia currency forex tag trading currency forex trade trading currency insurance trading currency trading education live currency trading online currency option trading advisor currency expert trading, commodity currency future trading currency day foreign trading currency exchange link trading credit currency trading