KTFA Postby PSRV » October 4th, 2013, 5:55 pm • [Post 370] In my research I discovered this information on the Ministry of Planning of Iraqi It does not date the writing but is interesting. Hopefully it is not old news.
The Exchange Rate of Foreign Currency in Economic Feasibility Studies
Below are the central controls related to the exchange rate of the foreign currency to convert the project inputs and outputs from foreign currency to its equivalent in the local currency, and that is by calculating the net discounted present value standard and the internal return on investments in economic analysis that governs investment projects that costs excess one million dinars.
Read More Link On Right
Estimate the shadow price of foreign currency:
1. It is necessary to put central controls to amend the official exchange rate * to reflect the shadow price of the foreign currency, and that is considered one of the necessary requirements to implement the net discounted present value standard and the internal return rate on investment in the economic calculation stated in the instructions, paragraph nine.
The central controls for adjusting market prices distinguished a group of outputs and inputs traded internationally, where the projects production or usage of them is reflected on the abundance of foreign currency in the economy and thus project outputs or inputs used of such are considered purely foreign currency outputs or inputs.
* What is meant by exchange rate: the number of units of foreign currency, expressed in dollar per one dinar.
In particular the following outputs and inputs of foreign currency were distinguished:
· Outputs marketed locally that substitute imports.
· Imported inputs.
· Inputs produced locally that usually go to exports.
· Foreign labor.
According to the pricing rules the value of the output and input (traded) is calculated using export prices (FOB) and import prices (CIF), according to what is listed in the pricing rules.
In other words the pricing rules calculate what the project produces from foreign currency (quantity of exports multiplied by the export price (FOB) in foreign currency or the quantity of substitute imports multiplied by the import price (CIF) in foreign currency, as well as what the project uses from foreign currency and imported inputs multiplied by the import price (CIF) in foreign currency .... etc.).
In a later step, project outputs and inputs must be converted from the foreign currency to its equivalent in local currency (dinars) by using a specific exchange rate for the foreign currency.
2. Justifications for exchange-rate adjustment: there are a number of important and powerful arguments which support the view that the official exchange rate reduces the real value of foreign currency for purposes of calculating the economic national profitability for investment projects and hence for the purposes of investment planning.
It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, substitute imports and imports... etc.
The justifications to call for the use of an exchange rate that is lower than the official exchange rate are:
· The use of an exchange rate that is lower than the official rate is the appropriate action at the investment planning level to translate the country’s economic strategy aiming at stimulating central investments in the sectors that encourage the development of non-oil exports, as well as sectors that encourage the expansion of domestic production base in order to reduce imports and compensate it with local commodities.
This helps to reduce reliance on foreign exchange earnings from crude oil exports and increases the share of non-oil sectors in the local production.
· The application of the amended exchange rate on project imported inputs will assist in directing investments away from aggregated sectors dependent on imported inputs and the preference of those sectors that rely on locally produced inputs.
· The use of the amended exchange rate helps to correct the balance in favor of the traded goods sectors compared to non-traded goods.
· The real exchange rate has declined rapidly since the early seventies, through rapid rise of the level of prices and local costs which led by the steadiness of the official exchange rate to change in prices and actual local rate costs that gave an advantage for imported goods at the expense of locally produced goods, meaning that it led to deterioration of the competitiveness of alternative replacement goods and export commodities.
· This action shows that the official exchange rate overestimates the value of the dinar, compared to the foreign currency and from the promoting goods substituting imports and export commodities point of view of.
And in support to this view is the state’s utilization and in a broad approach to the customs and quantitative protection policies especially for consumer goods, as well as export subsidies that exports have through an amended export exchange rate.
3. Estimate the amended exchange rate of the Iraqi dinar to be used in technical and economical feasibility studies and for (1.134) dollar per dinar. This price should be approved for 3 years until re-appreciation by the competent authorities.
>> This is one of what I considered to be the "core" paper's on why there is something to this investment. It makes sense with the fact that the capital in the country is still there. Infrastructure keeps coming.
Ernst and Young consider their currency value between .86 and 1.30. They are already operating at something around the value of the dollar there now. IMF and big investors need them to be international to be paid effectively.
Ch. 7 international recognition and other ariticles support they are working towards it......You can go on...and on........ :handshake3: :thumbsup:
KTFA walkingstick » October 5th, 2013, 7:16 am • [Post 151]
Expert: high rate of inflation leads to weak purchasing power of the Iraqi dinar 05-10-2013 11:29 AM Image
Baghdad (news) .. Expert stressed financial affairs Majid picture,
that in the event weakened the purchasing power of the Iraqi dinar
means that the existence of inflation offset by a rise in prices,
which greatly affects the economic stability of the Iraqi dinar.
said Suri (of the Agency news): The economic stability means the stability of the exchange rate inside and abroad, noting that any weakness in the Iraqi dinar weakened economy,
and affect all economic processes existing accounts.
between: that the decline in the purchasing power of the dinar will raise the value of the dollar due to increased demand
and declining confidence in Iraqi dinars,
which to economic instability. , and continued:
This matter will force the central bank to meet the demand for the dollar by offering a larger amount of the dollar in the auction,
and affects the reserve bank of hard currency.
saw the Iraqi dinar exchange rate declined severely in recent months, which was born upheaval significant in the local market but soon settled price to the current time. / End / 5.. /
- See more at: http://www.ikhnews.com/index.php?page=article&id=103473#sthash.Zbm2Ee1K.dpuf