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A Comprehensive Forex Broker Register
A comprehensive forex broker list includes investment banks with dealing rooms, commercial banks with treasury operations, and online brokerages that serve a larger market. The investment banks with forex trading capabilities include Morgan Stanley,...
A Short Introduction To FOREX.
FOREX is the world’s largest and most liquid trading market. Many consider FOREX as the best home business you can ever venture in. Even though regular people have had the opportunity to take part in trading foreign currencies for profit (in the...
FOREX 101
The Foreign Exchange Market, or FOREX market is a worldwide market where buying and selling of currencies takes place. These transactions take place 5 days a week, 24 hours a day and daily are worth approximately 1.5 trillion dollars (US). The FOREX...
FOREX Benefits Over Futures
From Agricultural Products To Financial Instruments
The origins of the modern futures market lies in the agriculture markets of the 19th century. Farmers started selling contracts to deliver agricultural products at a later date. This was done to...
How Does the Exchange Rate Exactly Works?
The exchange market mechanism can be pretty confusing for a person who doesn't have specialised knowledge in this area. The connection between the exchange rate of a currency and its trade deficit may seem like an undecipherable mystery. In order...
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Trading Analysis: The Big Mac
The Big Mac Factor... And What It Means to You
When "experts" say the dollar is "overvalued and about to
crash," what exactly is it that they're talking about? How do
they know?
It turns out, they don't know what they're talking about... as
the U.S. dollar is not undervalued or overvalued versus the
major currencies of the world, based on how much a dollar buys,
versus how much a euro or a yen buys (this is based on a rather
complicated calculation of "purchasing power parity," or PPP).
Fortunately, The Economist magazine invented a novel way to show
PPP that everyone can understand. According to the May 29, 2004
issue of the magazine, the editors invented the Big Mac Index
"in 1986 as a light-hearted guide to whether currencies are at
their 'correct' level."
The magazine simply asks McDonald's for the U.S. dollar price of
a Big Mac all over the world (McDonald's serves burgers in 120
countries). As of May 29, a Big Mac was 13% more expensive in
Europe than in the States. However, in Japan, a Big Mac was 20%
cheaper.
My take on this is that the U.S. dollar likely won't crash or
soar against these major currencies, based on this indicator.
The brutal truth is that the dollar isn't much overvalued or
undervalued.
The currency world sure is a much more boring world today than
many commentators would have you believe. It was a different
story back in 1995...
A Big Mac
in Japan was 100% more expensive than a Big Mac in the
States. Not surprisingly, over the next few years, the Japanese
yen crashed. In 1995, at the yen's peak, it only took 80 yen to
buy one U.S. dollar. By mid-1998, it took nearly twice as many
yen to buy one U.S. dollar.
If you had been smart enough to recognize the huge overvaluation
of the yen in 1995 - and the Big Mac Index was one very simple
way you could have done that - then you could have profited
enormously as the yen weakened.
Currency Trading: Much Ado About Nothing, at the Moment
I don't expect you to turn into a currency trader. And the great
thing is, right now, you don't need to be an expert on
currencies - you don't need to transfer your money back and
forth from yen to euros to dollars... why? Because the world's
paper currencies are fairly in line with each other - a Big Mac
costs the same in the countries of the world's major currencies.
The next time a Big Mac hits $6 a burger in Tokyo, I'll let you
know.
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