FIN 480: Student Currency Analysis

Below is a fairly decent currency analysis done by a fellow student.

"The Czech Koruna strengthened, against the Euro (€) despite the .2 percent decline in the economy. The Koruna is facing a 1 percent increase this week verses the €, this indicates that less Koruna are needed for a single €. With that said, the CNB (Czech National Bank) dropped interest rates to the lowest they have ever been down to .25 percent, which will lead to higher increase in prices and cause investors in the Czech Republic to invest elsewhere. While the Koruna strengthens and the Europe debt crisis worsens the Czech Republic economy will continue to weaken. The Czech exports a majority of their goods to Euro denominated countries. As their currency strengthens, it is more expensive for countries to buy the goods and import them, thus hurting Czechs economy. As the European Central Bank (ECB) goes through with their latest rounds of quantitative easing this should pump money into their economy and strengthen it. This in turn will weaken the currency and should increase exports of € denominated countries. The Czech Republic has been trying to keep their currency from strengthening versus the Euro by not letting it go below 24 CZK per 1 Euro. The reason being is to keep the currency cheap in order to support their exports and ultimately their economy. Exports make up 75% of the country’s GDP, and this strengthening is a major hit to business. Recent increases in the Koruna have been the result of European countries importing less from the Czech Republic, quantitative easing in the European countries, as well as the increase in taxes which we used to try and offset the increase in inflation. This actually shows that as the economy is weakening the currency is strengthening, which is why the CNB is considering a round of monetary policies to weaken the currency to try and rejuvenate the country’s economy. I think the CNB will not let the Koruna strengthen to much against the Euro since so much of their economy is based on exports. I feel they the CNB will let the Koruna get around 23.50 Koruna per Euro until further monetary policy action is considered. After reports on jobless claims, rising in the US the Mexican Peso depreciated against the dollar. This indicates now that it takes more Mexican Peso to buy a US dollar. One reason for this is that the US is a huge importer of Mexican goods and as more people file for unemployment in this last period that prevents less transactions between Mexico and the US which ultimately means less goods supplied for sale in the US and less imports. The result of fewer imports weakens the Mexican Peso and weakens their economy."

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