Connect with us

News

Foreign Exchange Rate – Assessing Chinese Exchange Rate Regime and Its Complications on US

Published

on

[ad_1]

Executive Summary

Since mid 2008 and due to economic crisis China has initiated a soft peg exchange rate regime pegging its currency to US dollar at a rate of about 6.83 RMB per US dollar. This change in policy terminated Chinese managed float exchange regime between 2005 and 2008. There is no time table set for this policy to end. Chinese currency is about 40% undervalued in compare to major currencies such as USD and Euro, however, this statement is not considered valid by Chinese authorities. China buys about $1 billion a day to keep the exchange rate constant which costs US about 6 to 8 thousands job every day. This is also hurting China’s neighbors as they can not compete with in the export market. As world entered the economic crisis and demand for Chinese goods dropped, China has started seeing inflation as it had not seen before.

Inflation is mainly caused by the stimulus package and cheap money available in China. RMB’s appreciation at this time not only can help ease the inflation but also can lower the world’s trade imbalance especially between the US and China which can stimulus the world economy. China argues its currency is not undervalued and keeps implementing monetary policies to keep the rates low. It is concluded that China is manipulating its currency to keep its export high and to increase its foreign reserve. This can not be sustainable as it increases the trade imbalance and hurts US and China’s neighboring countries dramatically. It is highly recommended to pressure China to re-think its exchange rate policy. Chinese change of policy can reduce the trade balance in the world and ends the recession sooner than later. This would eventually help China’s economy in the long run. Many factors affect a country’s trade balance besides exchange rate and one of those factors would be saving rate. As long as American saving rates are as low, appreciation in RMB will not eliminate trade imbalances, although it would narrow it.

Exchange Rate Regimes

There are two extreme exchange rate regimes, floating and fixed. Floating regime (US Dollar and Euro) is a market-driven policy that determines the foreign exchange rate based on the external demand and supply caused by free market forces. In this policy rate does not get intervened by government policies. This regime could be fully independent or managed, where as in independent regime exchange rate is completely a function of free market movements and supply and demand but in the managed regime government may intervene with some monetary policies to prevent sever fluctuation in the rates, if needed.

The benefit of such a regime is the automatic adjustment of exchange rate based on supply and demand. This regime will automatically balance the trade of deficit; when deficit increases the foreign currency values go up and therefore reverses the deficit as it makes exports cheaper and imports more expensive. Other benefit is the independence of the domestic inflation from possible inflations in the world economy as the rate floats accordingly. Furthermore, governments will have more freedom choosing their domestic policies (monetary) as those policies will not affect the balance of payment equilibrium.

However, uncertainty and instability in exchange rate is a huge concern in this regime as government will have no control over the rates. This fear is bigger for emerging markets as they carry liabilities in foreign currencies and assets in domestic currencies. Sever fluctuations in exchange rate can adversely affect liabilities and assets on the books which could be substantial for emerging market with weak economies.

Fixed or pegged regime is typically defined by rate fluctuation in a fixed band around a central rate. The rate is usually pegged to a certain currency (typically US Dollar) or a basket of currencies or sometimes gold. Therefore, the government needs to use several policies to keep the rate in that range.

Under this regime, devaluation of the currency will lead to rise in current account balance resulting in artificially cheaper exports and more expensive imports. This will increase the export level while decreasing the import and therefore, higher positive surplus and decrease in deficit. Another advantage of this regime is the certainty in exchange rate that it creates which would result in less risky international investment, especially between two countries with a lot of investments in each other and in countries where external investment and trades make a big portion of their economy.

A problem with this regime is not having the flexibility to adjust quickly to international waves and having less control on inflation caused by changes in international markets. This limits the government power in using monetary policies to affect macroeconomics of the country freely as the monetary policies will affect the exchange rate. The government needs to have a relatively strong foreign currency reserve to be able to buy/sell its own currency or the foreign currency to keep the exchange rate in that window (like China as it will be discussed in the following Sections).

Chinese Exchange Rate

Looking at most recent history of Chinese exchange regime, we see a fixed exchange rate, pegged to US dollar, between about 1995 and 2005, (8.28 RMB per USD). After 2002 following China’s accession to the WTO, US trade deficit with China increased dramatically and this put a lot of pressure on China to drop its fixed regime. In 2005 China announced it would let its currency float little by little and peg to a basket of currencies instead of just US dollar. This managed float policy was conservatively implemented and currency appreciated very little, (with highest appreciation in the first half of 2008). Since mid 2008 and amid the financial crisis China has used a soft peg policy (to US dollar), fixing the rate at about 6.83 RMB per Dollar. Although Chinese authorities have emphasized on this temporary soft peg, they have not set a time table to end this policy. Chinese government does not believe in RMB being under-valued. China’s argument to resist appreciation is the fear of wrecking China’s export and resulting in speculative inflows as it happened to Japan in 90’s due to pressures in letting Yen appreciate against US dollar.

The Chinese currency is undervalued by about 25 percent on a trade-weighted average basis and by about 40 percent against dollar. The Chinese government does so by buying about $1billion and selling their own currency daily to keep the currency undervalued. This policy is being followed by the neighboring countries in order to keep the competitive edge with Chine. These countries including Hong Kong and Singapore peg their currencies to RMB which magnifies the problem. Under-valued Chinese currency increases its exports as it damages exports of other countries, including the neighboring countries.

New and Old Bretton Woods (BW) Systems

Chinese exchange regime resembles similarities to old BW system as it carries differences too. It is similar as RMB is fixed to the US dollar; China keeps the exchange rate low to increase exports as Japan and Europe kept their rates low for the same reason during the old BW system; and the dollar is still the reserve currency in the world.

However, they are different as during the old BW United States had a huge account surplus but now it carries the biggest account deficit in the world. The other difference is that the old BW had a widespread support and world’s central banks would hold US debts, however it is unlikely they would continue absorbing US debt these days. And the biggest difference is that not so many countries like China peg to USD as they used to in the old BW system. The other difference is that at that time USD was the only currency to peg whereas now China can easily switch its peg to other currencies such as Euro.

China and Inflation

China’s GDP has been growing substantially. However, it has not experienced any notable inflation and its CPI has kept a low profile. This is a familiar pattern (high growth, low inflation) as it was seen in Southeast Asian economies during 50’s and 60’s and US in the 90’s (2.6% average inflation in US between 1991 and 1999 despite high growth). One of the factors contributing to this equation is the simple supply/demand curve. China’s high growth has led to supply exceeding demand in the domestic market which has led to downward pressure on prices. Besides, high growth in production, technology advancement, innovation, and higher productivity are adding to the downward pressure too. These factors help reduce costs of production and ultimately lower the prices. Massive investments in China (especially manufacturing) are creating dramatic growth in supply. Historically, in such developing countries massive investment in infrastructure leads to relatively high supply well surpassing demand and keeping the prices low. On top of these, growing competition in China will add to the factors to keep the prices low.

As discussed above, low inflation in China is a direct result of excess supply over domestic demand, which makes the inflation very dependent to external demand or world demand. As the world economy is experiencing one of the biggest recessions China is experiencing first biggest fall in demand for its products in years.

CPI has been growing in the last 11 months in China as it is expected to reach 2.8 percent in April including 5.5% hike in food prices (year to year) led by 32.2% rise in vegetable prices (food accounts for about 30% of the CPI in China). Recent inflation could partially be related to the massive stimulus program and cheap money in the country. As the world economy is going back to normal and Chinese exports going up, higher pressures on inflation is expected especially if China resists appreciation in its currency.

Although, a good effect of rising inflation in China is increase in consumption. Chinese are seeing lesser gain by keeping their money in the bank as prices hike. This creates incentives for them to take out the money out of the banks and invest on other things such as real estate or to increase spending as RMB loses its value. This will reduce savings and helps narrow the surplus-deficit gap in the world.

China and Beggar-Thy-Neighbor Policy

China’s policy of undervaluing its currency is being fueled by its government purchasing about $1 billion daily. Chinese’s purchase of about $1 billion a day results to about 6 to 8 thousand Americans lose their jobs by depreciating its currency and therefore increasing its exports (600,000 to 1,200,000 jobs every year). However, this is not just hurting Americans and Europeans but is also hurting the neighboring countries like South Korea, Indonesia, and Japan. Devaluation of RMB has made it very hard for American manufacturers or China’s neighboring countries to compete and has increased the off shoring substantially. The Chinese recent soft peg policy in this economic crisis came in the worst time as it doesn’t let competitors to survive and destroys the competitive edges. China is exporting unemployment to the rest of the world by continuing its policy in this crisis. Considering China’s huge reserve, it could have a much more constructive role in this economic crisis especially for its neighboring countries. This would also be the perfect time for China to change its policy and increase its expending and reduce saving.

[ad_2]

Source by Parham Khoshkbari

News

Where to Find Those Efficient and Hardworking Affiliates?

Published

on

[ad_1]

Everyone wants a hardworking affiliate, employee, associate, partner, or even spouse, and why not? It’s the next best thing to doing the work yourself. However with the massive outbreak of work and income opportunities available online, how can you beat everyone else and find that one (or more) ideal person who will make your online business explode with success? Here are some of the most ingenious and uncommon ways to snag the idea affiliates for your affiliate program

Direct Sales Agents

Direct sales people are really one of the most enterprising, hard-working individuals in business. They mostly work on commissions or rebates and are willing to literally go door-to-door offering their products to anyone and everyone they bump into. Imagine how much easier their job would be if they could be an affiliate and simply work via the Internet and a mobile device or desktop.

Also, most direct sales people tend to carry more than one brand in their product arsenal so signing up as an affiliate would be almost the same type of work but using a different approach.

Colleges and Universities

Many college kids would be interested in a part-time income opportunity if it would mean funds to help pay for their education, loan, or partying. All you have to do is make sure to offer them products they can endorse as a student.

Freelancers

Did you know that the U.S. Census Bureau’s latest annual report show that 75% of U.S. businesses used freelancers in 2011? Freelancers earned a whopping US$990 billion in 2011 which is a 4.1% increase from the previous year. The only industries where the number of freelancers decreased were in insurance, finance, and construction. Most probably your affiliate program isn’t a part of these 3 industries.

Furthermore, online business and finance experts are predicting the growth to increase incrementally every year even with an economy that is improving. People just want income security and more control over their earnings. With the spate of lay-offs, it’s understandable why many would prefer to work as an affiliate than as an employee.

Scout For Them At Affiliate Conventions

There are annual affiliate conventions held in different cities around the country. You should try to catch one when it is held somewhere near your location. The average turn-out for these types of conventions has increased regularly over the years. Last year, many of them were sold out weeks before the event.

Advertise!

The US Census Bureau has said that as of 2012, 15% of Americans are poor, 43% of young adults depend on their parents to some extent for money. Even more surprising is that the median income of young adults in 1982 was $31,583 and last year it was $30,604 for the same age group! Income is dropping and people are looking for ways to earn additional income outside of their 9 to 5 jobs. That’s where you can come in playing the hero and helping others realize their dream income.

Finally, go online and talk about your product. Make the affiliate marketers come to you and have the luxury of picking the best candidates. You will need some help in marketing your affiliate program so target a marketer who’s experienced in affiliate program and SEO.

[ad_2]

Source by Lina Stakauskaite

Continue Reading

News

Recession Is Here… Six Costly Mistakes Home Sellers Make During Recessions And How To Avoid Them

Published

on

[ad_1]

The U.S. is officially in a recession. What is a recession? A recession is a business cycle contraction or general economic decline due to significant drop in spending and other commercial activities. Most pundits and politicians will blame Covid-19 crisis for the recession, but even pre-Covid-19 the proverbial writing was on the wall.

The U.S. had over 120 months of economic growth, which was the longest expansion in the modern history. Other indicators, such as negative yield spread on treasuries (long term bonds having lower interest rates than short term T-notes), were pointing to an imminent change of the economic cycle and an impending recession. The only real question was: when and how bad?

Then Covid-19 came… If the cycle was going to change anyway, Covid-19 acted as a huge and unexpected accelerant to make the recession much more immediate and severe.

Inevitably during recessions all classes of real estate, including residential homes and condominiums, will be negatively impacted as lower consumer spending and higher unemployment rates affect real estate prices and marketing times.

Here are the six costly mistakes home and other real property sellers make during recessions and how to avoid them:

Mistake #1: This will pass and real estate market will be hot again soon

First thing to remember is that real estate cycles are much longer than general economic cycles. Even if the general economy recovers, which eventually it always does, a typical real estate cycle takes as long as 10 to 15 years. The cycle has four key stages: Top, Decline, Bottom and Rise.

Let us consider the last real estate cycle, which lasted approximately 14 years:

  • 2006 – Prices hit the Top
  • 2006 to 2012 – Prices Decline
  • 2012 – Prices hit the Bottom (Trough)
  • 2012 to 2019 – Prices Rise*
  • 2020 – Prices hit the Top
  • 2020 to? – Prices Decline

*NOTE: In 2016 the national residential real estate price index reached its pre-recession 2006 peak levels. It took 10 years for the real estate market to recover.

The way to avoid this mistake is to recognize that real estate cycles take years to run and plan accordingly. Additionally, nobody knows for sure when the prices will hit the top or bottom until after the fact.

Mistake #2: Low interest rates will make the economy and real estate market rebound

Between 2006 and 2011 the interest rates (Fed Funds) were continuously cut by the Federal Reserve Board and went from low 5% to almost 0%. However, that did not stop the real estate recession and depreciation of property values.

Undoubtedly, low interest rates made the economic decline and real estate recession less severe and saved some properties from foreclosures, but it still took six painful years for the real estate market to hit the bottom and then four more years for the prices to go back to their pre-recession levels.

Some markets had never fully recovered. For example, residential home prices in some parts of California, Arizona and Nevada are still below their 2006 highs.

To avoid this mistake, one needs to realize that although low interest rates help stimulate the economy and the real estate market, they do not cure them.

Mistake #3: I don’t need to sell now, so I don’t care

If you do not need to sell until the cycle plays out, which typically is over ten years, then you will not be as affected, especially if you have a strong equity position, limited mortgage debt, and solid liquid assets.

However, it is good to keep in mind that “life happens” and either professional or personal circumstances can change and we may need to sell property before the downturn runs its course.

Furthermore, if a property has a mortgages and its value declines to the point being “upside down,” meaning the mortgage loan balance exceeds the value of the property, then the options of selling, refinancing or even obtaining an equity line of credit, will be significantly limited.

This does not mean that everybody should be rushing into selling their real estate if there is no need to do so, just keep in mind that circumstances may and often do change and property options will be affected, so plan in advance. As one wise proverb says: “Dig your well before your thirst.”

Mistake #4: I’m selling, but I won’t sell below my “bottom line” price

This is a common and potentially very costly mistake. Generally speaking, every seller wants to sell for the highest price and every buyer wants to pay the lowest price. That’s nothing new. When selling real estate, most sellers want to achieve a certain price point and/or have a “bottom line.”

However, it is important to understand that the market does not care what the Seller, or his/her Agent, think the property value should be at. The market value is a price a willing and able buyer will pay, when a property is offered on an open market for a reasonable amount of time.

Overpricing property based on Seller’s subjective value or what is sometimes called an “aspirational price,” especially in a declining market, is a sure first step to losing money. When a property lingers on the market for an extended period of time, carrying costs will continue to accumulate and property value will depreciate in line with the market conditions.

Additionally, properties with prolonged marketing times tend to get “stale” and attract fewer buyers. The solution is to honestly assess your selling objectives, including the desired time-frame, evaluate your property’s attributes and physical condition, analyze comparable sales and market conditions, and then decide on market-based pricing and marketing strategies.

Mistake #5: I will list my property for sale only with Agent who promises the highest price

Real estate is a competitive business and real estate agents compete to list properties for sale which generate their sales commission incomes. It is not unusual that Seller will interview several agents before signing an exclusive listing agreement and go with the agent who agrees to list the property at the highest price, often regardless if such price is market-based.

Similarly to Mistake #4, this mistake can be very damaging to Sellers, as overpriced properties stay on the market for extended periods of time costing Sellers carrying expenses such as mortgage payments, property taxes, insurance, utilities and maintenance.

Furthermore, there is the “opportunity cost” since the equity is “frozen,” and it cannot be deployed elsewhere till the property is sold. However, the most expensive cost is the loss of property value while the real estate market deteriorates.

During the last recession, we have seen multiple cases where overpriced properties stayed on the market for years and ended up selling for 25% to 40% below their initial fair market values.

The solution is to make sure that your pricing strategy is based on the market, not empty promises or wishful thinking.

Mistake #6: I will list my property only with Agent who charges the lowest commission

Real estate commission rates are negotiable and not set by law. A commission usually represents the highest transactional expense in selling real properties and is typically split between Brokers and Agents who work on the transaction

Some real estate agents offer discounted commissions, in order to induce Sellers to list their properties with them. But does paying a discounted commission ensure savings for the Seller? Not necessarily.

For example, if the final sales price is 5% to 10% below property’s highest market value, which is not that unusual, due to inadequate marketing, bad pricing strategy, and/or poor negotiation skills, it will easily wipe out any commission savings and actually cost the Seller tens of thousands of dollars in lost revenues.

The solution is to engage an agent who is a “Trusted Advisor,” not just a “Salesperson.” A Trusted Advisor will take his/her time and effort to do the following: 1) Perform Needs Analysis: listen and understand your property needs and concerns; 2) Prepare Property Analysis: thoroughly evaluate your property and market conditions; 3) Execute Sales and Marketing Plan: prepare and implement custom sales and marketing plan for your property; and 4) Obtain Optimal Results: be your trusted advocate throughout the process and achieve the best possible outcome.

Finding such a real estate professional may not be always easy, but it certainly is worth the effort and will pay off at the end.

In conclusion, this article has outlined six costly mistakes real estate Sellers make during recessions and how to avoid them. The first mistake is not understanding that real estate cycles are long and take years. The second mistake is a misconception that low interest rates alone will create a recovery. Another mistake is not realizing that circumstances may change and not planning in advance. Mistakes number four, five and six pertain to understanding the market value, proper pricing and selecting the right real estate professional.

By understanding and avoiding these mistakes, real estate Sellers have significantly better chances of minimizing the negative impact of a recession while selling their properties.

[ad_2]

Source by Robert W. Dudek

Continue Reading

News

Useful Tips To Build The Best Gaming Computer

Published

on

[ad_1]

Every gamer will want their computer to be the best gaming computer among their peers. Sometimes, with a little knowledge and tips and tricks, it is possible to build the best gaming computer and show it off to your peers. This article will show you how:

1) You can’t get the best gaming computer from computer retailers

If you want to get the best gaming computer, you have to build your own. Different gamers have different requirement for their gaming machine. Unless you are willing to pay a high price, you will not be able to buy a commercial computer that fulfills all your gaming needs. The only option you have is to build your own gaming computer.

2) You don’t have to be rich to build the best gaming computer

It is not necessary to burn a hole in your pocket to build the best gaming computer. With some due diligence, do some market research and compare prices around the marketplace. Merchant such as TigerDirect and NewEgg give regular discount to their products and you could save a lot of money if you catch them during their promotional period.

3) Most expensive parts do not have to be the best part

Sometime, the latest model or the most expensive model does not have to be the best part for your computer. It requires various components to work together to form the best computer system. When choosing a computer part, what matters is how well it can integrate with the rest of the components. Compatibility is more important than individual performance. What use is there if you spend lot of money on the latest quad-core processor and find that your motherboard doesn’t support it?

4) You don’t need to change the whole PC to own the best gaming computer

It is a misconception that you have to change the whole gaming machine to build the best gaming computer. If you already have a good barebone system, what you need to do is to upgrade the necessary parts and your gaming computer can roar back to life instantly.

5) Brand is important

Unless you want to see your computer system malfunction every few days, it is important that you purchase the parts from branded manufacturers with strict quality control. Motherboard brand such as Gigabyte, ABIT, ASUS are some quality brands that you can consider

If you follow diligently to the tips stated above. You will be on your way to build the best gaming computer. While price can be an issue, it is better not to scrimp on important computer parts such as motherboard, CPU, RAM and graphics card as it will cost you more to upgrade in the future.

[ad_2]

Source by Damien Oh

Continue Reading

Tags

Live Statistics

Trending