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Currency Rigging from the Average Traders’ View

2016-08-04 06:47:21

How do average investors look at currency manipulation in different elements of forex trading?

Capital Flows

Those who manipulate currencies affect capital markets worldwide, which is extended to export competitiveness and trade balance. Investors look for higher returns in other markets when the value of currencies abroad decline relative to the US dollar. Many economists refer to the Japanese yen as a determinant of highs and lows of American stocks. If the currency strengthens, the recovery is imminent. Hence, when a foreign currency slides, demand for US assets dwindle, which can trigger bubbles in US markets.

Corporate Financial Reports

Currency rigging can impact earnings of US-based companies on a greater scale. American firms find it much harder to keep up with its rivals abroad on a price basis. Here’s why: exporters in the country become less competitive in offshore markets when nations outside the US depreciate their currencies unreasonably. Therefore, foreign exporters gain traction in America. That fact alone endangers business fundamentals despite competitive edge.

In most instances, the proportion of foreign-denominated expenditures is lower relative to the proportion of foreign-denominated sales for multinational companies in the US. Inject manipulation in the scenario and expect operating profits to descend. The same volume of sales will drop but expenses won’t drop. This will hurt retail investors. Exploiting the currency market results in lower earnings yields and profitability, as well as currency downfalls, pressuring dividends and its growth.

Economic Condition

What do we get when capital flows and corporate financial results are influenced? Challenges in the economy. A struggling economy can cripple investment in a nation and lower the returns in the long run as uncertainties can force traders to be more conservative. Threatening stability can pressure a central bank to reduce interest rates, which can transcend across the nation and the financial market.