[PEN-L:639] Re: Re: Re: Currency Values

[anders schneiderman <aschneiderman@xxxxxxxx>]

At 09:39 AM 10/23/98 -0400, you wrote:
>I'm not sure what the origin of this line of discussion is, but it is now
>pretty well accepted, even in mainstream international finance, that the
>trading of currencies for the purposes of financing trade (yen for pounds
>to buy British sweaters) is largely irrelevant in determining exchange
>rates, at least for internationally traded currencies.  The annual volume
>of currency traded exceeds the world volume of international trade by a
>factor of around 100.

Here's another way to think about it.  I just finished working at Ruesch
International, which manages international currency transactions for
mid-sized companies who are buying & selling goods & services.  In their
employee training, they said that roughly 4 out of 5 currency trades is
purely speculative (interestingly, roughly 11 out of 12 of these
speculative currency trades is a "technical" trade, meaning that the trade
is based not on a speculator's feelings about a country's actions but on a
mathematical model that uses past behavior to predict what will happen in,
say, the next few hours or minutes).  Of that remaining fifth, a good
amount of that is of a form that's essentially protection against future
swings in currency rather than purchases for actually financing a
particular trade, and then parts of these currency purchases are often
resold to other players when they aren't needed.  Factor in other issues,
such as people who purchase currency to pay for services where they pass
the cost on to others (e.g., patent attnys) and thus aren't particularly
price sensitive, and the direct overall effect of trade on currencies is
pretty small.

Anders Schneiderman