How a Falling Currency Affects You
In these unpredictable financial times, the value of currency is fluctuating more than ever before so it seems.
How does a currency falling against others' affect business, and people's lives, in general? Let's take a look at one example, the British pound, to see who wins - and who loses, as the pound falls against other major currencies.
Sterling has lost 20% of it's value in the last year.
The pound has fallen to a record low against the euro to 1.
1499 euros.
The two currencies could soon reach parity for the first time.
The two major reasons for sterling's loss of value is firstly because as interest rates in the UK drop, investors elsewhere pull their money out to seek higher returns in other currencies.
It's the same as small investors seeking a higher return by moving their money out of one bank into another.
With foreign investors though it's often on a much larger scale.
As that happens, the value of sterling spirals downwards.
The second reason is that there is also a loss of confidence triggered by the Bank of England repeatedly slashing interest rates.
Who loses out then when the pound falls? It's bad for British tourists going abroad.
They have to pay more for their foreign currency.
If, for example, at one time they would have received 300 euros for £200, now they will only get 230 euros for the same £200 (using the rate quoted above).
If they still want their 300 euros they would need to hand over £260.
89, thus costing an extra £60.
89.
That's not taking into consideration any commissions or other charges which might be payable.
It's bad for importers because goods they buy abroad cost more.
They have to hand over more in pounds to buy the products or services.
The same goes for anyone in the UK who pays wages to someone abroad for any work done, if the agreement is that the employee will be paid in their own currency.
But, there are some winners in all of this.
Businesses that export their goods to Europe will be happy with this situation.
If they are paid, say in euros, when they convert to sterling the value of that money will be higher than it was previously.
An example of this was on the news recently, when the owner of a Company buying old taxis and refurbishing them to sell to Germany, Holland, Australia, the US etc was interviewed.
His business is doing rather well, despite the shrinking UK market as the worsening economy deepens.
If a worker in the UK gets paid in foreign currency that's also good.
He will receive more in pounds when it is exchanged to sterling.
It's also good for foreign tourists coming to UK.
They pay less for pounds, so it encourages them to come here, which of course all helps the UK economy.
A high pound tends to deter some from visiting.
No doubt the speculators will win and lose in the currency markets, but for the ordinary person on the street whether they end up in one camp or the other will depend on a number of factors.
Sadly, some companies may go bankrupt which will certainly affect their workers who have no control over the value of their country's currency.
How does a currency falling against others' affect business, and people's lives, in general? Let's take a look at one example, the British pound, to see who wins - and who loses, as the pound falls against other major currencies.
Sterling has lost 20% of it's value in the last year.
The pound has fallen to a record low against the euro to 1.
1499 euros.
The two currencies could soon reach parity for the first time.
The two major reasons for sterling's loss of value is firstly because as interest rates in the UK drop, investors elsewhere pull their money out to seek higher returns in other currencies.
It's the same as small investors seeking a higher return by moving their money out of one bank into another.
With foreign investors though it's often on a much larger scale.
As that happens, the value of sterling spirals downwards.
The second reason is that there is also a loss of confidence triggered by the Bank of England repeatedly slashing interest rates.
Who loses out then when the pound falls? It's bad for British tourists going abroad.
They have to pay more for their foreign currency.
If, for example, at one time they would have received 300 euros for £200, now they will only get 230 euros for the same £200 (using the rate quoted above).
If they still want their 300 euros they would need to hand over £260.
89, thus costing an extra £60.
89.
That's not taking into consideration any commissions or other charges which might be payable.
It's bad for importers because goods they buy abroad cost more.
They have to hand over more in pounds to buy the products or services.
The same goes for anyone in the UK who pays wages to someone abroad for any work done, if the agreement is that the employee will be paid in their own currency.
But, there are some winners in all of this.
Businesses that export their goods to Europe will be happy with this situation.
If they are paid, say in euros, when they convert to sterling the value of that money will be higher than it was previously.
An example of this was on the news recently, when the owner of a Company buying old taxis and refurbishing them to sell to Germany, Holland, Australia, the US etc was interviewed.
His business is doing rather well, despite the shrinking UK market as the worsening economy deepens.
If a worker in the UK gets paid in foreign currency that's also good.
He will receive more in pounds when it is exchanged to sterling.
It's also good for foreign tourists coming to UK.
They pay less for pounds, so it encourages them to come here, which of course all helps the UK economy.
A high pound tends to deter some from visiting.
No doubt the speculators will win and lose in the currency markets, but for the ordinary person on the street whether they end up in one camp or the other will depend on a number of factors.
Sadly, some companies may go bankrupt which will certainly affect their workers who have no control over the value of their country's currency.
Source...