At the beginning of November 2020, presidential elections should take place in the United States of America, where Donald Tramp, as representative of the Republican Party and Joe Biden, as representative of the Democratic Party would confront as presidential candidates. Uncertain is the victory of any of these candidates at the elections and the outcome of it would have mayor impact over the financial markets in the world.
Usually the elections have positive impact over the USA economy, but this time the circumstances are different due to the newly occurred situation with the Corona virus pandemic. Therefore, the US Dollar may be noted as the most affected from all the other currencies, which largely depends on the developments in the USA economy.
At the beginning of Corona virus pandemic, the US dollar became safe haven currency for investing in the world (together with the Japanese Yen), so the currency pair EUR/USD at mid-March 2020 reached the highest level relative to the EUR (1, 0658), i.e. the April level of 2017, as a consequence of increased demand for US dollars and need for liquidity in this currency. Unlike this period, for the past three months the pair registered the lowest level in the past two years (1.1941), which is an indication of high currency volatility in period of mayor changes and movements at the world markets. An index of US Dollar was reduced by almost 7% for the last quarter, although for the first three months of the year it grew continuously. Having in mind the economic recovery of Europe from the Corona virus pandemic, as well as the manner of dealing with, the introduction of restrictions and relaxation of measures compared to the one of USA, it is concluded that it has contributed to a weaker USD relative to the EUR. Continue reading “Presidential elections in the USA and consequences over change of value of the US Dollar- magazine Economy and Business”
In the past month, at global level, we were witnessing major declines and volatilities at stock markets and financial markets as noted for the last time during the big financial crisis 2008-09. While back at those times, the largest “culprits” for the occurred crisis were the financial institutions, this time the mayor factor is quite untypical. The newly occurred situation is a result of the high exponential spreading of the respiratory Corona virus (aka COVID 19) from China to Europe, and eventually in the USA. At the moment, infected are residents of around 150 countries around the world. Currently, its spreading is the highest threat for the world economy and global financial markets.
Because of such development of the situation, the WHO reached a decision to declare a state of global pandemic.
With the virus COVID19, which was detected for a first time at the beginning of January in the city of Wuhan (part of the prefecture Hubei) in China, until March 11, 2020 infected were 81.250 Chinese, and 3.253 passed away (mainly citizens of Wuhan). Right when at the end of February, the Chinese authorities managed to localize the virus spreading, it begun to spread massively through Europe, mostly in Italy and Spain, while at the moment USA and Italy are exceeding China per number of infected citizens. The statistics from Italy are terrifying, where the number of the deceased reached extreme 10.779, and almost identical is the situation in Spain. Neither the Balkan Peninsula, including our state, remained immune to this virus. Still, the number of the affected and deceased is quite smaller than the above mentioned regions.
The emergence of the virus which rapidly spread all around the world over night has brought the world economies in recession. By definition, according to the traditional measuring, not a single economy has registered GDP decline, but the reality is that almost all developed economies are in deep recession already. Decline of the economic activity around the world is compared to the one of the high depression in the 30-ies of the last century. Following the initial shock from the virus and the extreme increase of infected persons, most of the countries in the past period were noting decrease in the of number of the newly infected, and thus the world would begin to return to normal, counting the losses.
Spreading of the virus, fear, measures for social distancing, limiting of movement, border closing and similar, had initially been mirrored in stock indices decline around the world and then in the global economic activity. Since the beginning of the crisis, the losses at the world stock indices went in negative figures ranging from 25 to 30 percents.
Businesses that in their regular operation have import-export relations with foreign companies are exposed to currency risk permanently – risk against change of exchange rate, before all, due to extreme volatility of FX market.
Scope of the FX market is at the historically highest level and is incomparable with the scope of the remaining market instruments (stocks, corporate bonds shares etc.). High scope of trading is also resulting in high volatility of the FX market under terms of market uncertainty.
Change of prices at the foreign market may have significant influence over the cash flows of companies whose businesses are import-export dependable. Under circumstances when the businesses have liabilities or receivables in foreign currency to become due in near time or planned investments for which assets are to be allocated in near future, it is of extreme importance for the companies to mitigate the currency risk and protect against losses on the account of exchange rate differences. FX Forward, i.e. spot FX transaction is used as an extremely flexible instrument for dealing with the currency risk. Continue reading “FX Forwards and their application- magazine Economy and Business”