Thread: Different currencies different rates... Why?

I've been looking into why the exchange rates for different currencies vary so much and I'm beginning to learn a little bit but I would like to ask everyone here at RC to join me in this quest for knowledge.

So far, I've discovered that there are a great many factors that determine a countries currency value. Some of these are things like the countries GDP per capita and the central banks interest rate. Other factors affecting the value of their money is the countries imports and exports but this is not even scrating the surface of all the variables affecting monetary value. The thing that is really puzzling me is the fact that some countries currency values relative to the US dollar seem to be way more than that of another countrys whos credit rating per Moodys or Standard and Poors is such that one would think that countrys currency would be valued higher. I will try to post some examples for you here and would very much appreciate everyons feed back.

Thanks

Look at the value of Afghanistan's Afghani. It's worth 2 cents US. Then look at what Afghanistan has going for it. Not much!

With this country being so poor, how can it's currency have a higher value relative to the US dollar than say Iraq or Vietnam?

I intend to learn why this is and I welcome everyone help. Thanks.




1 Afghanistan Afghani(s) = 0.0232558 US Dollar(s)
1 USD = 43 AFA
1 AFA = 0.0232558 USD



The afghani, denoted by AFA, is the official currency used in Afghanistan. Behind the afghani lies a history characterized by a lack of standardization and currency revaluation. Prior to the United States invasion of Afghanistan, political parties, foreign powers and forgers each made their own afghanis; the key attribute of this currency, at the time, was that there was essentially no standardization as afghanis were made without honoring serial numbers. (For example, after the Northern Alliance lost its power in 1996, banknotes were produced in Russia and sold on Kabul's markets at half the value!)

In early 2003, a three-month transition period ended in the swapping of old afghani banknotes for new currency. The new afghani received the code AFN, and had three zeros eliminated.

As soon as October hit, Anwar Ul-Haq Ahadi, Governor of the Afghan Central Bank, announced that Afghans should use their own currency for daily transactions instead of the commonly utilized US dollars and Pakistani rupees. This move was in preparation for October 8, 2003, when all prices in the Afghan marketplace were to be specified in afghanis.

Sovereign Ratings for Afghanistan Afghanistan is not rated.

What does it look like?


Political Structure

Based on its 2004 constitution, Afghanistan is run by a president who is directly elected by the popular vote to serve a five-year term. To qualify for standing, a presidential candidate must be at least forty years of age, Muslim, and an Afghan citizen. Limited to two terms, the president serves as head of state and government as well as commander-in-chief of the armed forces. The president makes appointments for his cabinet as well as posts in the military, police force, and provincial governorships (all with the approval of the parliament). There are also two vice presidents.

Afghanistan's legislative body is a parliament consisting of two houses: the Wolesi Jirga, the House of the People, and the Meshrano Jirga, House of Elders. The former is constituted by 250 members elected to five-year terms directly by the people, in proportion to the population of each province; a requirement of two women from each province has been instituted. In the Meshrano Jirga, one third of the members are elected by provincial councils for four years, on third are elected by district councils of each province for three years, and one third are appointed by the president for five years?of which a half of the elected positions must be women.

Finally, the Stera Mahkama, the Supreme Court, constitutes Afghanistan's judicial system. The Stera Mahkama is made up of nine judges appointed by the president to a ten-year term, with approval of the parliament. Judges must be at least forty years of age, have a degree in law or Islamic jurisprudence, and stand free of any affiliation to a political party. The appeals courts and lower district courts are also vital to the country's judicial system.



Prominent Figures President: Hamid Karzai, first ever democratically elected head of state in Afghanistan
Foreign Minister: Abdullah Abdullah
Finance Minister / Governor of Afghan Central Bank:Anwar Ul-Haq Ahady
Defense Minister: Abdul Rahim Wardak

Key Economic Factors Economic Overview: Afghanistan is an extremely poor, landlocked country with a high economic dependence on foreign aid, farming, and trade with bordering countries. A large proportion of the nation suffers from a lack of housing, clean water, electricity, access to medical care, and employment, providing for an extremely bleak environment nationwide. Despite this dark picture, however, Afghanistan is largely convalescing. From a developmental standpoint, the government and international donors are extremely committed to improvements in infrastructure development, education, housing development, and job programs. From an economic perspective, the recent years' infusion of over $2B in international assistance has allowed for dramatic improvements in agricultural production and the end of a four year drought in most of the country. Economic reform is well on its way.

Industries: Small-scale production of textiles, soap, furniture, shoes, fertilizer, cement, hand-woven carpets, natural gas, coal, and copper.

Agricultural Products: Opium, wheat, fruits, nuts, wool, mutton, sheepskins, and lambskins.

Export Commodities: Opium, fruits and nuts, hand-woven carpets, wool, cotton, hides and pelts, precious and semi-precious gems.

Import Commodities: Capital goods, food, textiles, petroleum products

1 US dollar will get you almost 11 Mexican pesos and that same US buck will get you over 118 Japanese yen and 1 Mexican peso will buy almost 11 Japanese yen.

There is about the difference between the USD and the MXN as there is between the MXN and the JPY. Now who would have thought that?





1 Mexican Peso(s) = 0.0915081 US Dollar(s)
1 USD = 10.928 MXN
1 MXN = 0.0915081 USD



1 Japanese Yen(s) = 0.00842957 US Dollar(s)
1 USD = 118.63 JPY
1 JPY = 0.00842957 USD


1 Japanese Yen(s) = 0.0921184 Mexican Peso(s)
1 MXN = 10.8556 JPY
1 JPY = 0.0921184 MXN

Mexico's credit rating, per Moodys is Baa2 and BBB- per S&P's. Yet, Japan has a much better rating, AAA per Moodys and AA- per S&P but even with a better credit rating Japans's money is not as strong as Mexico's. Check out the economic factors of each country and see if you can see why this is.





Mexico,
Key Economic Factors

According to the World Bank, Mexico has the highest per capita income in Latin America. The Mexican economy relies highly on the private sector, as there are only about 200 state-owned enterprises, down from over 1000 in the 1980s. Although the economy struggled in the mid-1990s, a strong export sector helped to revive the state of the economy and the currency in the late 1990s and into the 21st century. Mexico still needs to overcome many structural problems as it strives to modernize its economy and raise living standards. Income distribution is very unequal, with the top 20% of income earners accounting for 55% of income.

The Mexican economy has undergone a profound transformation since the 1980s as a result of economic liberalization and joining the North American Free-Trade Agreement (NAFTA, a free-trade bloc with the US and Canada). Having relied heavily on oil for foreign-exchange earnings in the late 1970s, manufacturing quickly became the main source of export earnings. In 2003 the sector accounted for around 20% of GDP and around 85% of export earnings, according to preliminary estimates. Almost half of total exports were produced in maquiladoras (in-bond assembly for re-export plants). Services, however, are the most important contributor to national output. During the first three quarters of 2003 the sector accounted for 66.6% of GDP.


Agriculture has declined in importance, economically (it accounted for just 4% of GDP in 2003) but remains an important source of employment (around one-fifth of the workforce is involved in agricultural activities). Mining is estimated at just 1.4% of GDP in 2003 but this heavily understates the importance of oil production to the economy and, particularly, to the Treasury. Oil exports represented 11.3% of total export earnings in 2003.





Japan,
Unique Characteristics

Japan is most vulnerable to rising crude oil prices, as it imports all its oil and, being an export-dependent nation, is highly sensitive to rising energy costs. With the continual increase in oil prices in recent years, the value of the Japanese yen has taken a toll.

Japan's foreign trade industry maintains an isolationist view. Japan lags behind the rest of world in regards to foreign trade, bringing about a number of structural problems as well as low productivity for domestic companies. The yen is affected since it only circulates within Japan; this lack of circulation outside of its own country makes the JPY weak.

When the strength of the yen rises, it hurts the manufacturing industry of Japan, which is a large component of the Japanese economy. Companies are investing in lower-cost nations since the yen is so strong and would cost the companies more money to trade with Japan.


Key Economic Factors

Industrial Production: The IP Index, measuring trends in the output of Japanese manufacturing, mining and utilities, is extremely important for gauging the state of the economy (as industrial production and inventory accumulation are highly correlated with a large share of the variation in national output). The outlook for production is highly dependent on the strength of Japanese exports. However, an impending yuan revaluation is a key issue because this will tend to increase Japan's ability to export to China and also boost the competitive standing of Japanese products on other countries' store shelves.


Foreign Trade: Import and export figures measure the value of goods shipped into and out of Japan. Exports figures (by product and destination) are usually closely followed, along with imports figures, which indicate the strength of domestic demand. Although China has been the chief contributors to Japanese export growth in recent years, the U.S. economy is regaining sway in becoming the most important market for Japanese companies. Forecasts indicate that the re-emergence of the U.S. is a very good thing for Japan. However, the U.S. will take time to have as dynamic an effect in Japanese sales as China has had in the past. Predictions are that double digit export growth figures are unlikely until China develops a renewed taste for Japanese wares.

Originally Posted by rodney ewalt

Look at the value of Afghanistan's Afghani. It's worth 2 cents US. Then look at what Afghanistan has going for it. Not much!

With this country being so poor, how can it's currency have a higher value relative to the US dollar than say Iraq or Vietnam?

I intend to learn why this is and I welcome everyone help. Thanks.

Great anaylist. This is why it is so hard to not understand why Nay-sayers or even Yea-sayers at times, just dont get it.

Before, in all Wars, the Political means was and still is Big Money. Just before, from the Desert Storm of Kuwait and all Wars before it, there was no Internet. Information Highway is here this time. And to be honest after it is all said and done, there want be another. The timeline of getting it done is what kills most. Patients Baby..........It is coming!!!!! Thanks Rodney.