Question

Research the Internet and provide a report showing the last twelve months of performance and impact of the Euro on world financial markets and on international trade. Where is the Euro this week in relation to the dollar and what are predictions regarding its future exchange rate?

Answer 1

Ans -

Currency comparisons are always done in a pair. So, if you mean that Euro is more valuable than dollar, then the question is in terms of what base currency?

If you think EUR gets you more USD, than vice versa, then that is not the correct way to evaluate a currency.

What can a currency buy you is its value. That has not got anything to do with how much it is more or less in comparison to another currency.

Because the EU is a union of countries the number of potential problems of the Euro is much greater than the number of problems facing the $US. However if a crisis were to occur in the confidence of the $US then the fall in the $US would be much greater than the Euro. In simple terms the Euro is currently marked down because of ongoing problems and the $US is over valued with the high value carried mainly by world confidence. It might appear as crazy logic but IMO the Euro is more stable because of it’s ongoing problems. To best explain that statement I’d say if the EU fixed it’s problems then the Euro would ascend.

The MSCI World net performance is calculated in US$ terms, which is the currency of refference of many indexes. The price of the index in EURO is calculated with the exchange rate EUROUSD of the day of reference.

Since the value of an exchange rate (Forex rates) fluctuates constantly, the performance of the MSCI index expressed in EURO will also fluctuate according to the EURO/USD value of the period taken into consideration.

If MSCI 01.01.2017 price in USD is X and MSCI price in US on 31.12.2017 is Y then

(Y / EURUSD rate 31.12.17) - (X / EURUSD rate 01.01.2017) = MSCI EURO price difference in year 2017