exchange rates differences.

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chi chi
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exchange rates differences.

Postby chi chi » Fri Mar 30, 2012 11:48 pm

I was looking yesterday at the exchange rates between euro and dollares.

The exchange rates where:

EURO: SELL: 3.56
BUY : 3.10

DOLLARES: SELL: 2.68
BUY: 2.74

Anyone knows why the rates between buy and sell of euro is much bigger than the difference of buy and sell of dollares?


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Re: exchange rates differences.

Postby craig » Sat Mar 31, 2012 11:54 am

The dollar market is much more liquid.
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Re: exchange rates differences.

Postby PeruFan » Sat Mar 31, 2012 4:48 pm

Speaking of exchange rates, can someone help me with a "math question." I'm not known for being real bright! :D

When we arrived in 2002 the exchange rate was 3.45 soles to the dollar (or even better) I recall getting 3.61 one time. How do I figure how much money I am "losing" on the now lower exchange rate? (For example if I was getting 3.45 to the dollar and now I get 2.67, how much has the dollar dropped in value? percentage wise?)

Thank you!
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Re: exchange rates differences.

Postby craig » Sat Mar 31, 2012 5:32 pm

PeruFan wrote:When we arrived in 2002 the exchange rate was 3.45 soles to the dollar (or even better) I recall getting 3.61 one time. How do I figure how much money I am "losing" on the now lower exchange rate? (For example if I was getting 3.45 to the dollar and now I get 2.67, how much has the dollar dropped in value? percentage wise?)

You cannot tell how much the dollar has dropped in value from the exchange rates because the sol is also dropping in value, just at a slower rate. That is, even if the exchange rate had been constant from 2002 to the present you would still be able to buy less for your money now than in 2002.

To tell how much the dollar has lost in value you have to compare how much real goods you could have bought in 2002 with how much you can buy now.

According to the US government CPI Calculator the dollar has lost about 26% between 2002 and 2012. However, the government lies about the statistics so this is a great underestimate of the loss.

A more realistic estimate of the loss in the value of the dollar is furnished by comparing how much gold a dollar bought in 2002 with how much it will buy now. You will find this graphed here.
The Half-Life of the Dollar
This shows that the real value of the dollar has been falling by 50% every 4 years. In 2002 the dollar was worth about 0.12 grams of gold. Now it is worth about 0.02 grams of gold. In other words, in the last ten years the dollar has lost about 80% of its former value.

I think it is worth noting what this means for all those Peruvians who have been keeping their savings in dollars for the last ten years. It means that 80% of their savings has been sureptitiously expropriated by the US government. I am sure the US is very grateful for all the weath it has gotten from the Peruvian people in the last ten years. Personally, I would have prefered it if Peruvians had been able to keep all that wealth and use it to improve their own lives.

Craig
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Re: exchange rates differences.

Postby sbaustin » Sat Mar 31, 2012 10:02 pm

PeruFan wrote:Speaking of exchange rates, can someone help me with a "math question." I'm not known for being real bright! :D

When we arrived in 2002 the exchange rate was 3.45 soles to the dollar (or even better) I recall getting 3.61 one time. How do I figure how much money I am "losing" on the now lower exchange rate? (For example if I was getting 3.45 to the dollar and now I get 2.67, how much has the dollar dropped in value? percentage wise?)

Thank you!


Craig is right in that you have to look at the actual buying power of the currencies and the cost of the stuff at the respective times however to take all of that out of the equation and simplify it only looking at the exchange rate you can easily do it this way.

If you had:
$1000 at 3.45 = S/3,450
$1000 at 2.67 = S/2,670

So for every $1000 you spend you are getting S/780 less compared to before.

Yes, what I wrote is not really correct and it is over simplified, however I think that's what PeruFan was asking.
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Re: exchange rates differences.

Postby JanD » Sun Apr 01, 2012 12:32 am

What you are doing are comparisons.
And yes that's of cause the only way, but be aware of its limitations. It's comparing moving objects.
When you f.i. compare the dollar against the sol you will get another outcome that comparing the dollar with the renmimbi, the euro or the british pound.
Only when you compare (in this case the dollar) with a certain number of other (be aware: also constantly moving) currencies during a period of time, you will get an idea of the direction the dollar is moving.
Comparing it with gold has the limitation that gold (compared with any currency) has sky rocketed the last couple of years.
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Re: exchange rates differences.

Postby craig » Sun Apr 01, 2012 3:21 am

JanD wrote:Comparing it with gold has the limitation that gold (compared with any currency) has sky rocketed the last couple of years.

No, gold has been quite stable in terms of purchasing power. The sky rocketing gold prices are due almost entirely to the fact that all fiat currencies have been losing value rapidly. That is why comparison with gold is a good measure.
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Re: exchange rates differences.

Postby JanD » Sun Apr 01, 2012 8:32 am

that all fiat currencies have been losing value rapidly


Which to my opinion does not show in the evaluation of the purchasing power of f.i. the euro.
When we look at the price development from the introduction of the euro until now, prices generally have only increased slightly.
For some commodities like crude oil it is of course another piece of cake.
But when you look at the price development of basic requirements in The Netherlands you can see that those only increased slightly in those ten years.
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Re: exchange rates differences.

Postby Kelly » Sun Apr 01, 2012 11:33 am

Pretty sure PeruFan isn't actually asking how much the dollar has dropped, but what the percentage change has been compared to the sol in the time period at hand.
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Re: exchange rates differences.

Postby chi chi » Sun Apr 01, 2012 3:20 pm

JanD wrote:
that all fiat currencies have been losing value rapidly


But when you look at the price development of basic requirements in The Netherlands you can see that those only increased slightly in those ten years.


I lived in The Netherlands during the change from Guilders to EURO and I´ve seen the prices gone up a lot.

Some restaurants just changed the guilders sign to a EURO sign on their menu thus more than doubling the price.

The only things that went up slightly was my salary.
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Re: exchange rates differences.

Postby JanD » Mon Apr 02, 2012 2:32 am

Chi Chi, that is true but that was during the transition, were restaurants and bars increased their prices in an unreasonable way.
That did however not apply to most costs of living in general and from that moment on prices increased only slightly. Just read the statistics form CBS (Central Bureau of Statistics) and others.....
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Re: exchange rates differences.

Postby chi chi » Mon Apr 02, 2012 2:54 am

JanD wrote:Chi Chi, that is true but that was during the transition, were restaurants and bars increased their prices in an unreasonable way.
That did however not apply to most costs of living in general and from that moment on prices increased only slightly. Just read the statistics form CBS (Central Bureau of Statistics) and others.....


I noticed that the only country that has kept it´s prices democratic is Germany since the EURO. When I was working for KLM, I was flying all over the euro zone. And sometimes, we felt that Germany became cheaper.

One of the countries that was the worst was Italy. They were used to charge 5000 liras for a beer. They made it 5 euro. Thus doubling the price.

I am sure that restaurants and bars in the Netherlands had to lower their prices because they were losing their customers in droves. People didn´t accept to pay from one day to the other double for getting the same portion and quality.

Good things is that the honest restaurant owners got rewarded. I often went with colleagues to a restaurant in Hoofddorp run by an Algerian chef. His prices remained the same after the EURO and he got a lot of respect from the public and his got more new customers. Because he was making much more money, he even lowered his prices.

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