BECOA Report on
Investing Currencies in the Far East
Prepared by: Brad Saunders
In the world today, the possibilities are endless for people who want to make money. These opportunities may exist in the form of a bond, currency, stock, or business venture, but the common tie between them is that it is possible to make money if you research the market and impose the proper strategic plans. In this report, the issue of investing money in the currency markets of the Far East will be my main area of interest. The Far East offers great potential for a currency trader who wishes to make money. I also have the option of investing in the European currency market as well, but I feel that the European market is somewhat too volatile for any significant gains to be made by pursuing any countries within. As is evident from classroom work in this course, the Far East has the greatest potential of any area in the world to be the next big area, in terms of economic expansion. With the many countries available to select for currency trade, it is very difficult for a student with limited resources to accurately and to the best of his or her's ability to make any significant amount of money on the currency market. However, I believe that by my researching the countries trends in areas such as: Inflation, Capital Investments, Unemployment, Exports, Budget balances, and Real Growth rates, that this is the key to making money through currency exchange. In this report my selections for currency exchange will justified by using the above areas as well as currency trends and volatilities, that prove Japan, Hong Kong, Singapore, Thailand, and Taiwan were all good strategic investments.
The first country that I chose to buy currency in was Japan. Japan, as many people know is a country that has proven itself as having one of the world's most powerful and stable economies. When we examine the Real Growth Rate in Japan (Fig. 1, pg: 7), we can see that the Japanese economy is growing every year over the charts history. In the late 80's and early nineties the Japanese economy was peaking and still continues to grow, with recent reports that the Japanese economy could rise once again as seen in the chart with 1995's increase. The second factor for Japan that I took into affect was their low levels of inflation. In (Fig. 2, pg: 7), we can see that the inflation level in Japan is very low, which means that the cost of goods in Japan does not widely fluctuate from year to year. In the early 1990's it is evident that Japan had a healthy level of inflation which we have learned is between two to four percent. But as of late, the level of inflation is somewhat a cause for concern because it has fallen below one percent. However, the economy is still growing and the only cause for alarm would be if the inflation rate approached zero or actually became deflation. These first two choices, as is evident have a great bearing on the fluctuation and growth that the Japanese Yen has shown and will continue to show. Yet another area that is of great of importance that I looked at before investing in Japan, is the export market. When we refer to (Fig. 4, pg: 8), it is clear that the value of exports that have been leaving Japan has been on a steady rise for the last five years. This trend is partly due to the great demand that the world has put on the Japanese for their high quality and low priced electronic goods. Since Japan is among the technological elite of the world, exports have been growing which will drive the value of the Yen up, causing me to make money because I bought the Yen at a lower price. The large number of exports that Japan produces is in part due to another area of my research, unemployment. The Japanese have what I conceive as a great grasp on controlling unemployment while the principal of low inflation combats against it. The low levels of unemployment can be seen in (Fig.5, pg: 9), which show Japan has an extremely low unemployment rate. The low unemployment contributes to the production of more goods that can be exported and in turn increasing the value of the Japanese Yen and making money for investors. The final factor that I took into account when invest in Japan is the Capital Investment made there. When referring to (Fig. 6, pg: 9), it shows that there has been a steady if not prospective increase in Capital Investment in Japan. This factor encouraged my to invest because it shows that the confidence is growing for investors and business people to invest in Japan, so therefore limiting the risk involved by investing in Japan. After seeing all of the information provided it is clearly evident that the Japanese Yen is a good choice of a currency to make money.
When research materials became available, I immediately saw that the country of Hong Kong had a great potential for an extremely good return on an investment. Even though Hong Kong is faced with the prospects of return to the rule of the Chinese government in 1997, it's economy and dollar still continue to grow. When we view (Fig.1, pg: 7), we can see that Hong Kong's Real Growth Rate has been increasing as of late. This constant growth of the Hong Kong economy is an exceptional example of why Hong Kong is such a good country to invest in the currency market. Although the Real Growth Rate is a good indicator of Hong Kong's investment return potential, I believe that Hong Kong's effort to maintain a balanced budget may be even better. If we refer to (Fig. 2, pg: 7), it is evident that Hong Kong has stayed on budget as well as saved money to help pay off their foreign debts. These figures show the government is committed to providing a stable dollar and economic environment, for both domestic and foreign business. This in turn will increase investment in Hong Kong and raise the value of their dollar. Another aspect in Hong Kong of interest, is their great export power. In (Fig. 4, pg: 8), the exports have grown by about $20 Billion a year for the last five consecutive years. This growth in exports is approximately a six percent increase in exports per annum. These figures show that Hong Kong has a strong and growing export market, which will put a greater demand on the Hong Kong Dollar, therefore driving it's price up. As is seen above, the impression is conveyed that the Hong Kong government is committed to providing a stable business environment. Hong Kong's strong business environment can also be seen through it's very health level of unemployment. (Fig.5, pg: 9) shows that in the last five years, Hong Kong's unemployment rate has been fluctuating around anywhere from two to three percent. As is seen in the output of the economy these levels are good examples of how a low unemployment rate can contribute and show the growth of a countries dollar. Many of the above examples found in Hong Kong are reasons that other business people invest their money in Hong Kong. In (Fig.6, pg: 9), Capital Investment in Hong Kong is shown. Like many of the other trends and statistics in Hong Kong, invest is growing with every coming year. The invest continues because the Hong Kong market offers a stability and potential that investors are looking for. However, in the coming year investors will have to wait and see what the Chinese plan to do with Hong Kong, then decide whether or not to continue to invest in Hong Kong.
When choosing a country in which to invest, there are two things that I tend to take into account. The first point would be is the country emerging and a potential future power or is the country past it's prime years. Singapore is a country that fit my first criteria perfectly. Singapore is one of the world's fastest growing countries, economically and is predicted to be the next "Japan". Economists or market analyzers often place Singapore in a group of countries known as the 4 Mini-Dragons or Tigers. If we refer to (Fig.1, pg: 7), it is quite obvious that Singapore has experienced some major and substantial economic expansion in the past five years. The rate of increase is one of the big attractions to investors who feel Singapore can provide some major returns through their currency. The Singapore dollar is a currency that is very prone to following the way of the Japanese Yen. This means that if the Yen starts a slow decline, the Singapore dollar can be predicted to go down. This phenomenon can be explained be comparing Singapore and Japan to Canada and the United States. The reason for the ties between currencies is simply based on the fact that both countries are each others major trade partner. The Singapore government which is known for it's strict rules has also played a major part in the country's currency developing to the stable and profitable rate it is today. The government's role in the economic and currency raise, can be seen by looking at (Fig.2, pg: 7), (Fig.3, pg: 8), and (Fig.5, pg: 9). These three charts can be interlinked between some main reasons for investing in Singapore. Singapore's inflation rate can be dubbed health since it is presently hovering between two and four percent. The low inflation in the country, in turn creates the low levels of unemployment that is seen in Singapore. An unemployment rate of two to three percent can be expected here due to the movement between jobs. The government has very strict unemployment policies here and tends to help those without jobs find a new one within a few months. The unemployment creates a very productive and functional work force that helps boost the economy as well as provides more goods for export. If we also look at Singapore's exports (Fig.4, pg: 8), we can see that exports have grew, mostly due to the low levels of unemployment and high volume of money being invested into business. The growing exports will surely add value to the already strong Singapore dollar. This extra infusion of investment dollars can be seen in (Fig. 6, pg: 9). This added value to the Singaporean market provides other investors with a basis which to compare potential currency exchange within Singapore's growing market.
Thailand and Taiwan
Thailand and Taiwan are two countries that have great strategic importance to my Far East Currency Investment Plan. These two countries were are used in the same main reasons as all the others, but for one other distinct reason. That reason is extremely low volatility against the Canadian Dollar. This strategic reason may sound absurd by involving the Canadian dollar, but the actual principal behind this idea is simple. If the Thai Baht and Taiwan dollar remain with a negative or zero volatility against the Canadian dollar after the 26th of November when the exchange of currency was made, this would secure all earnings to that point as well as possibly adding to them. (refer to pg: 10). Another way to back up this point is to see that the Foreign Funds must be converted back into Canadian Funds at the end of the project, so if the money is in a currency with little or no fluctuation against the Canadian Dollar a better return will be produced. Both countries Real Growth Rate can be found by referring to (Fig.1, pg: 7). Growth in both of these countries is steady and shows that the currencies of these countries must be in demand. However, as of late the reports suggest that Thailand could continue to grow at a faster rate if political situations subside. The next reason for investment in Thailand and Taiwan would be their Balanced Government Budgets. These can be found in (Fig.2 ,pg: 7) where it is obvious that the Taiwan government is committed to a balanced budget to add stability to their economy, after a couple of years of showing a deficit. Another interest combination that occurs between these two countries is the relationship between Unemployment and Inflation. The fact is in both countries healthy levels of both exist and seem to be stable. These inflation and unemployment figures (Fig.3, pg: 8) & (Fig.5, pg: 9) show that it is possible to have a stable dollar with both low levels of inflation and unemployment. In turn these two elements can attract the attention of foreign buyers of goods or currency. The foreigners see an advantage to make money by either investment or trading, so therefore want to buy more business or currency. To prove this fact (Fig. 6, pg: 9) shows that capital investment in both countries is making a turn for the good. With the many business transactions that have been occurring in Thailand and Taiwan, the export business has growing rapidly and became quite profitable. This fact can be proved by refer to (Fig. 6, pg: 9), that shows exports have climbed rapidly especially in Taiwan where recent predictions for export values are expected to be in the neighborhood of $110 Billion Dollars. After the completion of this section it is conclusively apparent that countries like Taiwan and Thailand were needed for this project to be successful in obtaining a profit.
After the completion of this report the reasons for my investing in the currencies of the Far East are all proved and justified with solid facts. It is now obvious that investing in foreign currencies is an exceedingly tedious task and requires a strategy as well as being able to find out to date information everyday. That is why by looking at factors such as: growth, exports, inflation, investment, budget, and volatility, it is easier to determine the direction of a countries currency value and hopefully after completing this report the knowledge and ideas that have been presented are clear enough, that you can now see why the countries which I invested in were good choices.
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