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“Today Shapes Tomorrow

 Published Every Monday Volume  20 (Special Edition)                        September 10, 2007
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What is stronger or weaker foreign currency?

We have been talking about foreign exchange in the past few volumes.  In continuation, let us consider what is the meaning of stronger or weaker currency?  Suppose you hear today in the business news that “Dollar was weak against the British pound today.”  It means that today (in comparison to the exchange rate earlier) dollar became cheaper to buy in British pounds.  In other words, for each British pound, you would get, in exchange, more dollars.  Alternately, for each dollar, you will get less British pounds.  Dollar become weak against the British pound is the same as British pound becoming stronger against the dollar. 

In this example, when dollar became weak, in the short run British people will find it cheaper to buy things in US, because for each British pound they have, they now can exchange them for more dollars.  For example, the exchange rate yesterday was 1 British pound (£) = $2.00.  Today, when the dollar became weak, let us say the exchange rate became 1 British pound (£) = $2.10.  Suppose your friend who lives in London wants to visit you and finds that it cost $600 for an airplane ticket between Britain and US.  The cost of the ticket, in British pounds, at yesterday’s exchange rate was 300 British pounds, and at today’s exchange rate it is 285.70 British pounds, or more than 14 British pounds cheaper. 

What affect this will have on the number of people traveling from Britain to US?  What will happen to the number of people traveling from US to Britain?  Look for coming issues where we will discuss these questions.

 

 

 

 

 

 

 

 

 

 

 

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