Dropping exchange rate

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Mar 17th 2009 | 2:11 am

#16

chartreuse

Joined: Jan 2008

Posts: 7,605

chartreuse is an unknown quantity at this point

Re: Dropping exchange rate

Quote:

Originally Posted by paddingtongreen

I don't understand "parity". On what is parity based?

It's short for "Purchasing Power Parity" and can be based on whatever you want. Let's say potatoes. If the same bag of potatoes costs Â£1 in the UK and $1.60 in the USA, then PPP is 1.6. Or hookers. If a hooker costs Â£100 in the UK and $160 in the USA, then when the rate is at PPP, you'll pay the same for your jollies, regardless of which currency you use.

Mar 17th 2009 | 2:25 am

#17

Mallory

In the pink

Joined: Oct 2006

Posts: 3,326

From: USA

Re: Dropping exchange rate

Quote:

Originally Posted by paddingtongreen

I don't understand "parity". On what is parity based? The exchange rate is usually driven by interest rates, people buy the currency, and drive up the price, when they want to invest in the county's bonds. That isn't working right now, since our interest rate is near zero.

Just use the Big Mac Index!

Mar 17th 2009 | 5:02 am

#18

Dan725

BE Forum Addict

Joined: Aug 2004

Posts: 3,368

From: Tampa, FL

Re: Dropping exchange rate

Quote:

Originally Posted by paddingtongreen

Parity can almost be a personal idea/expectations on the way you see things. My view of parity is created out of my own personal historical view of dollar/pound rates and cost of goods UK vs US. For me it also reflects on salary earned here compared with salary in the UK (higher here in dollars than for for similar job in UK in pounds).

The results of this very unscientifc method is that I believe parity to be around 1.5-1.6.....which does actually seem to chime with most other peoples views.

Mar 17th 2009 | 5:39 am

#19

exvj

Banned

Joined: Aug 2007

Posts: 1,333

From: the dry part of Washington State

Re: Dropping exchange rate

Quote:

Originally Posted by Haldaman

Thank you for your birthday greetings! The exchange rate greeted me this morning with the news that it is $1.383 to the pound. It was not long ago that I thought I was doing well because I was getting $2 to the pound. This is extremely relevant because my UK state pension and my Somerset County pension are paid in pounds to Lloyds TSB (now nationalised of course). How long will it be before the rate is 1:1 and I won't be able to pay the mortgage?

The bright side to this is that when you do your US tax return, your income has been reduced by 33% !!!!!!!!!!!!!!!!!!!!!!!!!

and your tax more than that

as long as you leave your sterling in sterling, it will be 2.00 again in a couple of years and you will win both ways

I spend several hours per day managing my currency exposures. My US shares dropped $180k but they are worth more GBP than when I bought them.
When I go back to the elphant's graveyard to die, I will have made a bundle