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Currency Wars and Foreign Exchange

Macroeconomics
by

Riya Patel

on 3 November 2014

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Transcript of Currency Wars and Foreign Exchange

Milena Flament
Currency Wars
Foreign Exchange
Are nations engaging in currency wars?
Are nations manipulating the international value of currency?
Effects...
By:
Riya Patel
Priti Patel
Jankhna Joshi

Sources
What is Devaluation?
process of which the value of money decreases
natural process shown throughout history
used to balance trade (imports and exports)
Biggest Devaluation
1930s
Great Depression
lost gold standard
devalued over 40%
Examples
depreciation
inflation/deflation
nominal value vs real value
Germany after WW1
currency rates dropped
devaluation helped to pay reparations
Pros
Cons
lowering costs of exports
get into a new market
average citizen will suffer
higher prices for imports
oversea vacations will be costly
Devaluation:
Good or Bad?
Devaluation
What are currency Wars ?
Coined in 2010 by Guido Mantega, Brazil's finance minister
Also known as competitive devaluation
a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency
Yes
G7 and G20
Last major war was in the 1930's
The Gold Standard
contributed to the Great Depression
cheaper currency = more exports
imports are more expensive
Import or Export?
"Why Do Governments Devalue Their Currency Rates?" Currency Solutions. N.p., 17 Sept. 2014. Web. 25 Oct. 2014 <http://www.currencysolutions.co.uk/news/why-do-governments-devalue-their-currency-rates.html>.

"Currency War Could Cause Lasting Damage to World Economy." The Guardian. Guardian News and Media, 1 Jan. 2013. Web. 27 Oct. 2014. <http://www.theguardian.com/business/economics-blog/2013/jan/24/currency-war-damage-to-world-economy>.

Yglesias, Matthew. "How So-Called Currency Wars Could Boost the Global Economy." <i>Slate Magazine</i>. He Slate Group, a Graham Holdings Company, 12 Feb. 2013. Web. 27 Oct. 2014. &lt;http://www.slate.com/articles/business/moneybox/2013/02/currency_wars_how_competitive_devaluation_can_boost_the_global_economy.html&gt;

."The Causes and Consequences of Currency Wars." <i>The Causes and Consequences of Currency Wars</i>. Analysis Group Forum, 1 Jan. 2013. Web. 1 Nov. 2014. &lt;http://www.analysisgroup.com/causes_consequences_currency_wars.aspx&gt;.

"The Effects Of Currency Fluctuations On The Economy." <i>Investopedia</i>. Web. 1 Nov. 2014.

"What Is a Currency War and Are We Heading for One?" BBC News. N.p., n.d. Web. 01 Nov. 2014.

"Is China Really Manipulating Its Currency? And What Should We Do About It?" Slate Magazine. N.p., n.d. Web. 30 Oct. 2014.
Consequences
it raises all kinds of competition
finance
valuation issues for multinationals
Nation
Internationally
merchandise trade
economic growth
capital flows
inflation
interest rates
Global Influences of Currency
Example
Japanese Yen
Yes
These are some countries that manipulate the value of its currency
China
South Korea
Japan
Why doesn't the U.S do manipulate the international value of its currency ?
In the long run it could damage our economy
Benefits
Investors
a weaker currency will stimulate exports and make imports more expensive, so this will decrease a nation’s trade deficit
the higher the value of net exports, the higher a nation’s GDP
A nation needs to have a stable currency to attract investment capital from foreign investors.
A devalued currency results to inflation for countries that are importers of that country
Imports cost more for the importing country
A strong domestic currency with a tightening monetary policy will attract more money from foreign investors, who are seeking higher yielding investments, this will only push up your currency
Invest overseas
invest in U.S. multinationals
Refrain from borrowing in low-interest foreign currencies
Hedge currency risk
Japan started with a near-zero interest rate
Its currency has depreciated against the U.S. dollars and Euro
Japan had the best exchange rate
Now it's currency is depreciating quickly
G20
Italy, Japan, U.K, Canada, Germany, France, U.S.A, European Union
Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, U.K, U.S.A, European Union
Full transcript