Weak vs Strong Currency By acquestoadmin
Currency is about the relative weakness or strength when compared to others at any given moment. It’s not an absolute value. In reality neither weakness nor strength is better or worse. Strong Currency is usually from a highly industrialized country however it is not very true is case of Burma/Myanmar currency Kyat.
Weak Currency [currently weak US$ compared to strong Japanese Yen as of August 2011]
1. Good for nations which have a larger share of export than imports making up their GDP. Their exports become more competitive but at the same time their imports become more expensive.
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2. Having a weaker relative currency encourages more nations to buy their goods more affordable to overseas purchasers.
3. Weaken their purchasing power drops.
4. A weak currency is bad if you are planning to travel to areas with a strong currency or purchase items made in an area with a strong currency
5. A weak currency will however stimulate manufacturing and export to areas with stronger currency
Actually, the factors influencing on the currency is very complex because of so many factors involved.
Factors Contributing to a Weak Currency
1. Lower interest rates in home country than abroad.
2. Higher rates of inflation (inflation rate of US 4% vs. Japan 1.8%).
3. A domestic trade deficit relative to other countries (too high deficit likes US).
4. A consistent government surplus.
5. Political or economic uncertainty within the country with the Weak currency.
6. A collapsing domestic financial market (likes US and European).
7. Weak domestic economy/stronger foreign economies (corporate and industry moving outside US).
8. Frequent or recent default on government debt (near default and credit downgrade likes US).
9. Monetary policy that frequently changes objectives.
10. Able to growth in Equity market such as Dow.
11. Real Estate Industry may be probably doomed or boomed by Foreign Investors such as in Florida.
Strong Currency [currently strong Japanese Yen compared to weak US$ as of August 2011]
1. Good for nations which rely more heavily on imports than exports. Their exports become less competitive so they export less. This could result in a decline in the balance of payments and a weakening of the currency.
2. It hurts domestic manufacturing both intended for the domestic market and for export.
3. A strong currency has a higher purchasing power in the international market than a weaker currency.
Factors Contributing to a Strong Currency
1. Higher interest rates in home country than aboard. (Not true for Japan however 12% to 17% in Burma/Myanmar)
2. Lower rates of inflation. (inflation rate of Japan 1.8% vs. US 4% ).
3. A domestic trade surplus relative to other countries.
4. A large, consistent government deficit crowding out domestic borrowing.
5. Political or economic certainty within the country with the Strong currency.
6. A strong domestic financial market.
7. Strong domestic economy/weaker foreign economies.
8. No record of default on government debt.
9. Sound monetary policy aimed at price stability.
10. Unable to growth in Equity market such as Nikkei.
12. Real Estate Industry can be depressed or burst.