Special Topics in Economics Special Topics in Economics Econ. 491Econ. 491

Chapter 6:Chapter 6:

Currency Development ReportCurrency Development Report

I. Exchange Rates Developments ReportI. Exchange Rates Developments Report

The report analyzes the performance of the exchange The report analyzes the performance of the exchange rates for main currencies during a particular period of rates for main currencies during a particular period of time ( week, month, quarter, year).time ( week, month, quarter, year).

The report consists of four sections; Exchange rates The report consists of four sections; Exchange rates performance, interest rates performance, exchange performance, interest rates performance, exchange rates expectations, and interest rates expectations.rates expectations, and interest rates expectations.

II. Exchange Rates PerformancesII. Exchange Rates Performances

In this section, the changes in the exchange In this section, the changes in the exchange rates are described based on numerical data .rates are described based on numerical data .

A numerical table is used in this section to A numerical table is used in this section to show the changes in the rates.show the changes in the rates.

Sources of the exchange rates figures can be Sources of the exchange rates figures can be obtained from different places but mainly from obtained from different places but mainly from Reuters.Reuters.

According to this table;According to this table;

Source: ReutersSource: Reuters

What is happening to the US dollar What is happening to the US dollar v.sv.s main currencies? main currencies?

““The exchange rate of the US dollar …….(increases / The exchange rate of the US dollar …….(increases / decreases) against the main currencies at the end of month X. decreases) against the main currencies at the end of month X. Particularly, the US dollar closed at ……(higher / lower) rate Particularly, the US dollar closed at ……(higher / lower) rate by ….% against …… in month X compared to the month Y by ….% against …… in month X compared to the month Y closing rate” closing rate”

Statement Closing rate in the last month

(Y)

Closing rate in the

current month (X)

Change rate(%)

Highest level

Lowest level

Yen per US dollar

97.41 100.46 3.1% 103.18 97.38

Euro per US dollar

0.7595 0.7695 1.3% 0.779 0.759

Why the US dollar Why the US dollar v.sv.s main currencies is increasing/ main currencies is increasing/ decreasing?decreasing?

““The exchange rate of the US dollar …….(increases / The exchange rate of the US dollar …….(increases / decreases) against the main currencies at the end of month X decreases) against the main currencies at the end of month X for several reasons.……mention them …..etc” for several reasons.……mention them …..etc”

Now; let’s look at the other currencies’ performances?Now; let’s look at the other currencies’ performances?

- In order to check on the other currencies, we have to plot its - In order to check on the other currencies, we have to plot its trend with the US dollar.trend with the US dollar.

- According to the graph, we can tell of the currency is - According to the graph, we can tell of the currency is increasing or decreasing then repeat same procedures that increasing or decreasing then repeat same procedures that done with the dollar. done with the dollar.

According to the graph, What’s happening to the Euro According to the graph, What’s happening to the Euro v.s US Dollar?v.s US Dollar?

Dollar for each Euro Euro Exchange Rate against

Dollar

Why the Euro Why the Euro v.sv.s US dollar is increasing/ decreasing? US dollar is increasing/ decreasing?

““The exchange rate of the Euro …….(increases / decreases) The exchange rate of the Euro …….(increases / decreases) against the US dollar at the end of month X for several against the US dollar at the end of month X for several reasons.……mention them …..etc” reasons.……mention them …..etc”

III. Interest Rates DevelopmentsIII. Interest Rates Developments In this section, the developments in the interest In this section, the developments in the interest

rates for main economies are described.rates for main economies are described. A numerical table is used in this section to help A numerical table is used in this section to help

showing the changes in the policy.showing the changes in the policy. Sources of the interest rates figures can be Sources of the interest rates figures can be

mainly obtained from national central banks.mainly obtained from national central banks. Each month, central banks announce their Each month, central banks announce their

decisions with regard to interest rates whether decisions with regard to interest rates whether increasing the rates; decreasing; or keeping rates increasing the rates; decreasing; or keeping rates unchanged.unchanged.

According to the graph, What’s happening to interest According to the graph, What’s happening to interest rates?rates?

Source: National Central BanksSource: National Central Banks

Statement Last Month (X) Current Month (Y)

Base Change in

Points USA:

- Federal Fund Rate- Discount Rate

0 - 0.25%0.75%

0 - 0.25%0.75%

--

Euro Area:-Main Refinancing Operations 0.75% 0.50% 25

UK:-Official Bank Rate Paid on

Commercial Bank Reserves0.50% 0.50% -

Japan: -Overnight Call Rate 0 - 0.10 % 0 - 0.10 % -

Canada: -Overnight Rate 1% 1% -

Australia: -Overnight Cash Rate 3% 2.75% 25

IV. Exchange Rates ExpectationsIV. Exchange Rates Expectations In this section, the expectations about the In this section, the expectations about the

exchange rate performance will be described.exchange rate performance will be described. Sources of the exchange rates expectations can Sources of the exchange rates expectations can

be mainly obtained from different reports:be mainly obtained from different reports:- Scotia bank; Global Economics

- Institute of International Finance; Global Economic MonitorInstitute of International Finance; Global Economic Monitor

- J.P. Morgan’ Reports

- Hargreaves Lansdown ; Hargreaves Lansdown ; Currency Research Centre

- IMF Reports

It will be so helpful if reports mention the It will be so helpful if reports mention the expected rates, as figures, for the future.expected rates, as figures, for the future.

The following table is helpful;The following table is helpful;

Source: …………Source: …………

Statement Next Month (Z) Next three Months

Yen per US dollar 104.00 105.00

Euro per US dollar 0.793 0.689

V. Interest Rates ExpectationsV. Interest Rates Expectations In this section, the expectations about the In this section, the expectations about the

interest rates will be described.interest rates will be described. Sources of the interest rates expectations can be Sources of the interest rates expectations can be

mainly obtained from different reports:mainly obtained from different reports:- Institute of International Finance; Global Economic MonitorInstitute of International Finance; Global Economic Monitor

- Hargreaves Lansdown ; Hargreaves Lansdown ; Currency Research Centre

- J.P. Morgan’ Reports

- IMF Reports

It will be so helpful if reports mention the It will be so helpful if reports mention the expected rates, as figures, for the future.expected rates, as figures, for the future.

According to the graph, What’s happening to interest According to the graph, What’s happening to interest rates?rates?

Source: National Central BanksSource: National Central Banks

Statement Next Month (Z) Next three Months

USA:- Federal Fund Rate

- Discount Rate 0 - 0.25%

0.75%0 - 0.25%

0.75%Euro Area:

-Main Refinancing Operations 0.75% 0.50%

UK:-Official Bank Rate Paid on

Commercial Bank Reserves0.50% 0.50%

Japan: -Overnight Call Rate 0 - 0.10 % 0 - 0.10 %

Canada: -Overnight Rate 1% 1%

Australia: -Overnight Cash Rate 2.75% 2.50%