Posted by: changholt | November 23, 2010

Currency volatility and your clients

There has been a good deal of volatility in international currency markets this fall and some discussion in the press about the possibility of an international currency war. Changing international currency values won’t affect all of your clients equally, but there is a very good possibility that they will have some effect on nearly all of your clients.

In a perfect world, changes in currency values would reflect nothing more than changing international trade and financial relationships among individual countries. The currency of a country with a big trade surplus should go up and the value of a currency of a country with a big trade deficit should go down. Of course, it’s not a perfect world. Currency values are also affected by economic policies, investor perceptions of the economic prospects of different countries and sometimes, by direct intervention in currency markets by governments or central banks.

As international trade has increased exponentially in recent decades, currency values have become more and more important because more and more countries have come to depend on exports for a substantial part of their economic growth. Canada has long been in this position, while China is a relative newcomer as a major exporter.

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