Executive Summary.
This chapter reviews the nature of foreign-exchange-rate movements and explores the reasons for these rate adjustments. First, the distinction between a nominal and a real (inflation-adjusted) currency price change is established.
To illustrate the degree of actual price volatility, nominal and real price changes for five major currencies are charted.
The evolution of the international payments system is then traced as a means of explaining our current, largely floating, exchange-rate regime.
Finally, the chapter reviews in some detail the current sources of pressure for currency price adjustment, including the cause and effect of country payments imbalances and the influence of government policy on currency pricing..
Introduction.
If foreign exchange rates were always the same, a large amount of valuable management time would be saved, and, in fact, this book would be unnecessary. However, rates do move, and sometimes with dramatic and disconcerting rapidity.
Even the best known and most widely used currency in the world, the U.S. dollar (USD),
has experienced major rate adjustments in the last decade fell again to about 159 yen in early 1991.
The purpose of this chapter is to explore why these and other exchange-rate adjustments occur.
Subsequent chapters will look at what these changes mean to corporations, and what managers can do to protect their firms in the face of such rate changes and to capitalize on opportunities thus presented.
How Foreign Exchange Rates Have Moved in the Past There are several important foreign exchange rates in addition to the Japanese yen/USD rate mentioned above. Before we consider why they move, it is useful to look briefly at how they have moved in the recent past.
First, however, we must define two types of exchange-rate moves, a nominal one and a real one. Nominal and Real-Exchange-Rate Adjustments A nominal-exchange-rate move is simply the total observed movement in the exchange rate.
It is not adjusted for inflation or for any other factor.
A real-exchange-rate move is the nominal-rate movement adjusted for the differential in inflation.
For example, if British inflation has been 10 percent over the past year, while German inflation has been 0 percent, and the pound sterling devalues against the mark by 10 percent in the same time period, the nominal-rate move would be 10 percent, but the real adjustment is zero. We would say that nothing has happened.
It takes 10 percent more pounds to buy a mark and, therefore, 10 percent more pounds to buy a loaf of bread in Germany. However, it also takes 10 percent more pounds to buy a loaf of bread in England because of the 10 percent inflation there.
In other words, German bread still costs the same as English bread; the basic exchange rate between English and German goods has not changed.
There has been no change in the real exchange rate, for either goods or money. An adjustment in the real currency exchange rate is, therefore, one that represents an adjustment in the exchange rate for real goods and services.
If the rate of inflation is the same in each country and the exchange rate moves, a real-rate move has occurred.
If a bushel of British wheat costs 1 pound, and 1 pound buys 1 mark, and 1 mark buys 1 pair of German shoes, then the bushel of wheat is worth a pair of shoes and
Understanding Foreign Currency ex-MOTION: can be exchanged for those shoes by selling the wheat for a pound, changing the pound for a mark, and using the mark to buy the shoes a Now, if there is no inflation anywhere, there is no change in either the pound price of wheat or the mark price of shoes.
However, over time, a currency-rate move, to 2 marks per pound for example, will alter this relationship.
The wheat can still be sold for a pound, but the pound will now buy 2 marks, which will buy not 1 pair, but 2 pairs, of shoes.
Be cause the exchange rate for real goods (wheat for shoes) has been altered, a real-currency-rate move has occurred.
As illustrated by the preceding example, the distinction between a real and a nominal-currency-rate change is important.
It matters to managers because nominal-rate changes do not necessarily alter corporate competitive positions, but real ones do. In addition, the distinction is important to government economic policy and tactics.
As we shall see, for example, it is not clear whether governments can cause lasting real-exchange-rate movement by forcing changes in the nominal rate. A nominal-rate change, by definition, is offset by the inflation differential between the currencies and, therefore, will not do much to help with a trade deficit. We will look at these issues shortly. First, though, we will look at what actually happened to exchange rates in the period 1974-1990,
both real and nominal, for some of our more widely traded currencies, as shown in Exhibits 2.1 to 2.5. In all cases, the consumers Bank ledger.
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Code of Federal Regulations | Streamlines transfer of local at federal canceled. Both filings must be effective on the same date and may be filed under the same transmittal.
(2) If a carrier canceling its tariff intends to cease to provide existing service, then it must revise the Title Page For first page of its tariff indicating that the tariff is no longer effective.
(3) A carrier canceling its tariff, as described in this section, must comply with §§61.5
4 (b)(1) and 61.54 (b)
(5), as applicable. (b) When a carrier cancels a tariff as described in this section, the canceling Title Page or the first page of the canceled tariff must show where all rates and regulations will be found except for paragraph.
(c) of this section. The Title Page or first page of the new tariff must indicate the name of the carrier and tariff number where the canceled material had been found.
(c) When a carrier ceases to provide service(s) without a successor, it must cancel its tariff pursuant to the notice requirements of §61.58, as applicable, unless otherwise authorized by the Commission.
[64 FR 46591, Aug. 26, 1999, as amended at 76 FR 43216, July 20, 2011]
EFFECTIVE DATE NOTE: At 76 FR 43216, July 20, 2011, §61.87 was amended by revising paragraph (a) introductory text, paragraphs (a)(1)(i) and (ii), (a)(3), and (c).
This text contains information collection and record-keeping requirements and will not become effective until approval has been given by the Office of Management and Budget. Subpart H-Concurrences SOURCE: 49 FR 40869, Oct. 18, 1984. Redesignated at 76 FR 43215, July 20, 2011, unless otherwise noted.
EFFECTIVE DATE NOTE: At 76 FR 43215, July 20 2011, subpart G (consisting of §§61.131 to 61.136) was redesignated as subpart H. The old subpart H consisting of (§§ 61.151 through 61.153) was removed. The old subpart H exists at the end of this new subpart H.
This new subpart H contains information collection and record keeping requirements and will not become effective until approval has been Church service provided junction with other carriers and to a carrier which has chosen, as an alternative to publishing g its own tariff, to arrange concurrence in an effective tariff of another carrier.
Limited or partial concurrences will not be permitted.
$61.132 Method of filing concurrences.
A carrier proposing to concur in another carrier’s effective tariff must deliver one copy of the concurrence to the issuing carrier in whose favor the concurrence is issued.
The concurrence must be signed by an officer or agent of the carrier executing the concurrence, and must be numbered consecutively in a separate series from its FCC tariff numbers.
At the same time the issuing carrier revises its tariff to reflect such a concurrence, it must file one copy of the concurrence electronically with the Commission in accordance with the requirements set forth in §61.13 through $61.17.
The concurrence must bear the same effective date as the date of the tariff filing reflecting the concurrence.
Carriers shall file revisions reflecting concurrences in their tariffs on the notice period specified in § 61.58.
[76 FR 43216, July 20, 2011] EFFECTIVE DATE NOTE: At 76 FR 43216, July 20, 2011, §61.132 was revised.
This section contains information collection and record- keeping requirements and will not become effective until approval has been given by the Office of Management and Budget.
§ 61.133 Format of concurrences. (a) Concurrences must be issued in the following format: CONCURRENCE
F.C.C. Concurrence No.
(Cancels F.C.C. Concurrence No. (Name of Carrier)
(Post Office Address)
(Date) Secretary,)
Federal Communications Commission, Washington, D.C. 20554.
Code of Federal Regulations
Streamlines transfer of local at federal canceled. Both filings must be effective on the same date and may be filed under the same transmittal.
(2) If a carrier canceling its tariff intends to cease to provide existing service, then it must revise the Title Page For first page of its tariff indicating that the tariff is no longer effective.
(3) A carrier canceling its tariff, as described in this section, must comply with §§61.54(b)(1) and 61.54(b)(5), as applicable.
(b) When a carrier cancels a tariff as described in this section, the canceling Title Page or the first page of the canceled tariff must show where all rates and regulations will be found except for paragraph (c) of this section.
The Title Page or first page of the new tariff must indicate the name of the carrier and tariff number where the canceled material had been found.
(c) When a carrier ceases to provide service(s) without a successor, it must cancel its tariff pursuant to the notice requirements of §61.58, as applicable, unless otherwise authorized by the Commission.
[64 FR 46591, Aug. 26, 1999, as amended at 76 FR 43216, July 20, 2011] EFFECTIVE DATE NOTE: At 76 FR 43216, July 20, 2011, §61.87
was amended by revising paragraph (a) introductory text, paragraphs (a)(1)(i) and (ii), (a)(3), and (c).
This text contains information collection and record-keeping requirements and will not become effective until approval has been given by the Office of Management and Budget.
Subpart H-Concurrences SOURCE: 49 FR 40869, Oct. 18, 1984. Re-designated at 76 FR 43215, July 20, 2011, unless otherwise noted.
EFFECTIVE DATE NOTE: At 76 FR 43215, July 20 2011, subpart G (consisting of §§61.131 to 61.136) was re-designated as subpart H. The old subpart H consisting of (§§ 61.151 through 61.153) was removed.
The old subpart H exists at the end of this new subpart H.
This new subpart H contains information collection and record keeping requirements and will not become effective until approval has been Church service provided junction with other carriers and to a carrier which has chosen, as an alternative to publishing its own tariff, to arrange concurrence in an effective tariff of another carrier. Limited or partial concurrences will not be permitted.
$61.132 Method of filing concurrences.
A carrier proposing to concur in another carrier’s effective tariff must deliver one copy of the concurrence to the issuing carrier in whose favor the concurrence is issued.
The concurrence must be signed by an officer or agent of the carrier executing the concurrence, and must be numbered consecutively in a separate series from its F.C.C tariff numbers.
At the same time the issuing carrier revises its tariff to reflect such a concurrence, it must file one copy of the concurrence electronically with the Commission in accordance with the requirements set forth in §61.13 through $61.17.
The concurrence must bear the same effective date as the date of the tariff filing reflecting the concurrence.
Carriers shall file revisions reflecting concurrences in their tariffs on the notice period specified in § 61.58. [76 FR 43216, July 20, 2011] EFFECTIVE DATE NOTE: At 76 FR 43216, July 20, 2011, §61.132 was revised.
This section contains information collection and record-keeping requirements and will not become effective until approval has been given by the Office of Management and Budget.
§ 61.133 Format of concurrences. (a) Concurrences must be issued in the following format: CONCURRENCE F.C.C. Concurrence No. (Cancels F.C.C. Concurrence No.) (Name of Carrier (Post Office Address) (Date) Secretary, Federal Communications Commission, Washington, D.C. 20554.
Only Particular or other if the Unit is allowed andor valued at and to Kill.