THREE MAJOR WESTERN CURRENCIES - I

Last year this time, sterling-euro exchange rate (€/£) was almost 1. 1£ was equivalent of 1€. This was from a level of 1.36 in January 2008, 1.44 in November 2007. (Now it is 1.11)

Similarly; dollar-sterling exchange rate ($/£) this time last year was 1.48, 1.98 in January 2008, 2.08 in November 2007. (Now it is 1.62)

One theory that would explain the movement is the inflation differences between the countries/regions. For $/£ between January 2008 and last time this year, there should be higher inflation in UK economy compared to the US economy according to the theory.

EURO MOVE

In a team work exercise I have been about seven years ago; two small groups were asked to build a tower from paper and staples.

Both groups were given “a” amount of papers, plenty of staples, “b” amount of capital. If ran out of paper you could buy more by “c” amount of money. For breakeven the tower should have been at least “d” foot tall and any foot above the breakeven would add to existing capital. The team, which would add more with consideration of scarce resource of papers would be the winner.

In my team (T1); we decided to make cylinder shaped blocks by rolling the papers - attached with staples- to make a cube of 3*3 (each cylinder making one of 9), and put some papers between each layer of 3*3. To make the foundation stronger; use three papers for each roll of the first two layers and roll them as landscape shaped. Then from third layer onwards use two papers for each roll and roll them as portrait shaped.

T1's building was getting higher and higher, as if competing to Eiffel Tower. When finished, I said, “Be careful with moving, the building may fall down” and two of the observers of the team as a joke acted like they were going to run. It didn’t fall and T1 had the highest capital.

The link to today: Just reading Financial Times of Saturday and once more seeing how suddenly global economy can shake with one walk, worse if run. Just look what happened to Euro. An economy making 3% of the zone’s GDP shook the whole Euro zone, and the value of the currency, causing 5% fall in the exchange rate against the US$ in 2010 so far. The market for Euro is moving strongly. And it may be the time to watch the Euro Zone Tower.