Created by Thea Hempel, MBACreated by Thea Hempel, MBA

Understanding Understanding International CurrenciesInternational Currencies

Did you know there are nearly 200 Did you know there are nearly 200 circulating world currencies?circulating world currencies?

Graphic courtesy of globalresearch.ca

What are International CurrenciesWhat are International Currencies

International Currencies have a fascinating International Currencies have a fascinating history – check out history – check out http://en.wikipedia.org/wiki/World_currency

Currency rates are simply one currency unit Currency rates are simply one currency unit reflected in the value of another unit.reflected in the value of another unit.

THE TRICK IS EVALUATE THE TRICK IS EVALUATE ONE UNIT DIRECTLY TO THE OTHER ONE UNIT DIRECTLY TO THE OTHER

Currencies fluctuateCurrencies fluctuate (that means they change) (that means they change)

all the time!all the time! What affects how they fluctuate?What affects how they fluctuate?

Balance of TradeBalance of Trade Balance of PaymentsBalance of Payments Economic ConditionsEconomic Conditions Political StabilityPolitical Stability Many factors!Many factors!

Check out www.xe.com!Check out www.xe.com!

These rates update every 45 seconds!!!!

But let’s put this into terms you But let’s put this into terms you can relate to….can relate to….

Let’s say you visit McDonalds as you Let’s say you visit McDonalds as you board a flight to Europe. Then, when board a flight to Europe. Then, when you land you also visit a McDonalds – you land you also visit a McDonalds –

DID YOU KNOW? DID YOU KNOW? In both markets the company offers a In both markets the company offers a

“UNIT” menu. Meaning, that in the “UNIT” menu. Meaning, that in the US there is a Dollar Menu and in the US there is a Dollar Menu and in the Euro Zone a Euro Menu. Euro Zone a Euro Menu.

So you want a burger?So you want a burger?

Dollar MenuDollar Menu I want a Double I want a Double

CheeseburgerCheeseburger How much?How much?

Euro MenuEuro Menu Ich will einen Ich will einen

CheeseburgerCheeseburger Wieviel kostet er?Wieviel kostet er?

BOTH MENUS WILL LIST ONE

UNIT OF CURRENCY FOR THE PRODUCT

PRICE!

Exchange RatesExchange Rates Dollar and EuroDollar and Euro

THENTHEN

$ 1 = 1 € $ 1 = 1 €

Cheeseburger is Cheeseburger is fundamentally $1 on fundamentally $1 on both sides of the oceanboth sides of the ocean

Euro and DollarEuro and Dollar

NOWNOW

$1 = ,75€$1 = ,75€

Cheeseburger now costs Cheeseburger now costs $1.33 in Europe for $1.33 in Europe for the same product!the same product!

Its about inverses!!!Its about inverses!!!

1 ÷ 1 = 11 ÷ 1 = 1

1 ÷ .75 = 1.331 ÷ .75 = 1.331 ÷ .84 = 1.191 ÷ .84 = 1.191 ÷ .50 = 2.001 ÷ .50 = 2.00

1 ÷ 2.00 = .501 ÷ 2.00 = .501 ÷ 1.19 = .841 ÷ 1.19 = .841 ÷ 1.33 = .741 ÷ 1.33 = .74

It’s all about a It’s all about a currency’s relation currency’s relation to ………to ………

11

How does this work?How does this work? It’s about balanceIt’s about balance

If the dollar gains..If the dollar gains..

$1.00 = 1,19€$1.00 = 1,19€1€ = $.841€ = $.84

No matter how the No matter how the balance tipsbalance tips

If the Euro gainsIf the Euro gains

$1.00 = ,50€$1.00 = ,50€1€ = $2.001€ = $2.00

In essence, there is a basket of In essence, there is a basket of currencies…….currencies…….

As the basket shuffles or jostles related to global economic news and events…

…the world currencies shift, rising and falling related to other currencies!

THE END!!!THE END!!!