Exchange Rate

"I give you two clearies for one cat eye."

"You give me two kumquats for one banana. With the peel on this time."

"I give you $42,382 for this new Ford hemi truck with the awoooogah horn."

Yep. these are all exchange rates. Marbles for marbles, fruit for fruit, and dollars for trucks with awoogah horns.

In more common, finance-y parlance, exchange rates focus on the trading back and forth of national currencies. Each country or region generally, has its own currency. Printing more of that currency lets the government pay its bills more easily if it’s not collecting enough dough in taxes…but if it prints too much of that currency, then it falls in value relative to the currencies of other countries.

When that happens, the goods of the inflated country seem cheap to other countries, and in theory they buy more…and it makes it much more expensive for the inflated currency country to buy more from the we-dont-print-too-much-currency country.

Example time:

One euro cost about two US dollars when it first came out. A nice hotel that was 250 a night in Paris cost a US currency holder about 500 bucks. So you can imagine...there were not a whole lot of US tourists anxious to rent hotel nights from Rue de la blah blah blah. But when Europeans looked at buying American-made Speedo swimsuits…uh…yeah. They were cheap. And clearly too many Europeans bought them.

But then the euro fell into closer parity with the US dollar, in part because faith in their economic union fell, and because the US appeared to be printing money at a slower pace than were the Europeans. That is...the relative inflation of the US was better than it was in Europe.

So today the exchange rate of the US dollar to the euro is about 1-for-1. You’d say that the rate of euros to dollars is about even. And, coincidentally, a US dollar buys you about 100 Japanese yen...about 600,000 Zimbabwean dollars...and 14,000 galleons. If, uh…you’re vacationing at Hogwarts.

Lovely this time of year.