propositioned Santa that since he was over weight, he should walk
more and drive less. So Santa parked the sleigh and bought a state
of the art gym pack. Conditioned by his globetrotter habits, he
got the best price in Jamaica, and paid in US dollars.
buys goods and services; the real worth of money is what it can
buy at any point in time. Since the value of money was un-pegged
from the value of gold decades ago, the dollar bill can buy more
in some places or it can be virtually useless.
you exchanged US$100, for Jamaican currency, youd get enough
JA dollar bills to stuff your wallet AND your pockets with them.
The same would happen in Guyana. If you changed it into TT dollars
youd get only $630, and in Barbados youd get just about
this affects the trade between countries, when currency has to be
bought and sold. Also trade in goods takes place in order for individuals
to provision the household. There is virtually nothing you can do
to alter that imbalance.
we travel we tend to mentally convert everything back to TT dollars
and then attempt to rationalise the comparative costs. Sometimes
we wonder if we are paying more for better quality, or less for
everybody loves a bargain. And everyone takes a risk. But what about
those interested in investing?
risk refers to how the returns will vary as the value of the currency
fluctuates, when the returns are converted from a foreign currency
into the local currency. It is also better known as exchange rate
risk is important in international mutual funds, foreign stocks,
and foreign bond issues.
top of currency risk, one must also understand the concept of country
risk is also called political risk. This weighs the countrys
economic and monetary policy profile against social and civil stability.
Some countries are high on the political risk scale, like Pakistan
and Venezuela and some others are low eg the US.
general, risk can be pervasive, meaning it affects the entire market,
such as inflation risk. This is called systematic risk. Non-systematic
risk is different from market risk, since this type of risk is specific
to the issuer. An example would be shares issued by a private companyit
is commonly understood to be: issuer risk and the risks are unique
to the security or asset.
risk is made up of both components: market risk plus issuer risk.
is important to also differentiate financial risk. This is an often-misunderstood
terminology. It does not really refer to broad risk in financial
affairs. Instead financial risk is properly the risk involved in
risk is the risk involved when people borrow money to finance their
business. It weighs against what they actually own or the amount
of equity held in the portfolio.
Santa, faced with a health risk, financed his gym pack with a loan
from the bank. He has faced country risk year after year going in
to carry his toys, but will Santa survive his health crisis?
saga of Santa continues.