Transcript Currency Trading 101

Currency Trading 101
International Currency Investor
Simulation
David Mathews, Mira Loma High School
Introduction
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We all know that money is anything which
functions as a "medium of exchange." But in
the world of international economics,
currencies are more than that: they are a
commodities that are traded back and forth
just like stocks, bonds or other assets.
 In this simulation you will become a currency
investor. Your objective is to hold the currency
that will maximize your purchasing power at
the end of each round. Good luck!
Rules of the Simulation
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1. You will start the simulation with a bank balance in US
dollars. During each round of the game you can either hold your
dollars or use them to purchase some other currency.
2. If you change currency, you must change it all. In the real
currency markets you can hold many currencies at once, but not
in our game. Changing currency means "buying" as many
Brazilian Real or Argentine Pesos as $100 can get you, using the
exchange rate at the beginning of each round.
3. You will be given information about the world economy
during each round to help you make your decision.
4. You can only purchase candy with your currency using the
end of round prices - when you find out if and how exchange
rates have changed.
5. You must record all of your transactions on your bank
balance sheet.
6. Each round starts with new money; you cannot carry a
balance from one round to the next.
Round 1 – Initial Exchange Rates
Rate: $1 = 2R = 3P
 1 Hershey Kiss = $100 or 200R or 300P
 This tells you that your initial $100 can
buy 200 Brazilian Real or 300 Argentine
Pesos
 Read the following headlines and decide
whether you want to trade your currency.
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Round 1 - Headlines
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1. The Brazilian government has announced
that it will market generic AIDS drugs to poor
nations throughout the world.
 2. Street violence has broken out in Buenos
Aires as unemployment and crime increase.
 3. The US government announced that war
time expenses will create budget deficits for at
least the next three years.
 4. Consumer confidence in the US has
dropped 3% as a result of increasing
government debt.
Round 1 - Headlines
5. The Brazilian central bank has
increased interest rates due to fears of
inflation.
 6. Business Confidence in Argentina
has fallen by 10%.
 7. Brazil’s economy is growing at 7%
per year.
 8. Argentina’s economy is shrinking at
2% per year.
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Round 1 – Make your Decision
Now’s the time to decide whether you’ll
hang on to US dollars or purchase a
different currency.
 Record your transaction on your
Currency Score sheet.
 You have less than 60 seconds.
 Rate: $1 = 2R = 3P
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Round 1 – Ending Exchange Rates
New Exchange Rate: $1 = 1R = 4P
 This means that you may now buy a
Hershey’s Kiss for the following prices:
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100 US Dollars
 100 Brazilian Real
 400 Argentine Pesos
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Round 1 Debrief
What happened? Why were some
people able to buy 1 kiss while others
could buy 2 kisses and still others
couldn’t buy any?
 Which currency gained value? Which
currency lost value? Why?
 What will you do differently in round 2?
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Round 2 – Initial Rates
Rate: $1 = 1R = 4P
 1 Hershey Kiss = $100 or 100R or 400P
 Our beginning point is the exchange
rates as they stood at the end of round 1.
 Read the following headlines and make
your decision.
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Round 2 - Headlines
1. Brazil has just elected a popular
socialist politician as their new president.
 2. Argentina has made a deal with the
IMF and expects to attract foreign
investors very soon.
 3. The US Federal Reserve has raised
interest rates in an attempt to slow the
US economy.
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Round 2 - Headlines
4. The Brazilian government has
announced a new tax on wealthy citizens
– 50% of their income now goes to feed
the poor.
 5. The Chinese government has
announced its plans to purchase Soy
from Argentine farmers.
 6. In the US scientists have finished the
human genome project.
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Round 2 – Make your Decision
Now’s the time to decide whether you’ll
hang on to US dollars or purchase a
different currency.
 Record your transaction on your
Currency Score sheet.
 You have less than 60 seconds.
 Rate: $1 = 1R = 4P
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Round 2 – Ending Exchange Rates
New Rate: $1 = 2.5R = 1P
 This means that you may now buy a
Hershey’s Kiss for the following prices:
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100 US Dollars
 250 Brazilian Real
 100 Argentine Pesos
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Round 2 - Debrief
Which currencies lost value? Which
currencies gained? Did any stay the
same?
 As a currency trader, which concerns
you more: what your currency is worth
today or what it will be worth tomorrow?
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Round 3 – Initial Rates
Exchange Rate: $1 = 2.5R = 1 P
 This means that if you change your
currency from US dollars you can buy
250 Brazilian Real or 100 Argentine
Pesos
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Round 3 Headlines
1. Brazil’s new president has made his first
priority "that every Brazilian should get at least
one plate of food each day."
 2. A mild winter has allowed Argentine
farmers to raise more wheat than ever before.
 3. The US government announced today that
private American firms can patent sections of
the Human Genome to produce new
medications.
 4. The US economy shows signs of growth –
factory orders have increased.
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Round 3 Headlines
5. Wealthy Brazilians have started to
leave the country complaining they are
being “taxed to death.”
 6. China has made no announcements
regarding soy being grown in Argentina.
 7. The Brazilian president said to a TV
interviewer “inflation isn’t so bad if you’re
poor – it’s only the rich who suffer.”
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Round 3 – Make your Decision
Now’s the time to decide whether you’ll
hang on to US dollars or purchase a
different currency.
 Record your transaction on your
Currency Score sheet.
 You have less than 60 seconds.
 Exchange Rate: $1 = 2.5R = 1 P
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Round 3 – Ending Exchange Rates
New Exchange Rate: $1 = 3R = 1P
 1 Kiss = $100 or 300R or 100P
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Round 3 Debrief
It’s all making sense now, right? Good.
 What would happen if we added another
currency?
 Shall we find out?
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Round 4 – Initial Rates
Rate: $1 = 3R = 1P = 45 Indian
Rupees
 Kiss = $100 or 300R or 100P or 4500
Rup
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Round 4 Headlines
1. Brazil's economy has shown larger
than expected growth as workers accept
pay cuts to be more competitive in world
economy.
 2. Argentine workers go on strike.
 3. US interest rates rise to 17% as Fed
tries to stop inflation.
 4. Intel announces a deal to design and
produce chips in Bangalore, India.
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Round 4 Headlines
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5. The Indian government announces that
socialized medicine will continue, even though
its costs are running higher than expected.
 6. Ethnic violence between Sikhs and Hindus
has escalated in Northern India.
 7. The US has announced plans to invade
Khazakstan because Osama Bin Laden has
been seen there.
 8. China is unhappy with India’s policy on
foreign investment – they claim it favors the
US and Britain.
Round 4 – Make your Decision
Now’s the time to decide whether you’ll
hang on to US dollars or purchase a
different currency.
 Record your transaction on your
Currency Score sheet.
 You have less than 60 seconds.
 Rate: $1 = 3R = 1P = 45 Ind Rupees
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Round 4 – Ending Exchange Rates
New Rate: $2 = 3R = 3P = 86 IR
 Kiss = $200 or 300R or 300p or 4300 IR
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Round 4 Debrief
So what happened in round 4? Was it
easier or harder to predict the changes?
 Why was it different?
 What does this make you think about the
actual forex market, where up to 200
currencies can be exchanged?
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Final Debrief
What is currency worth?
 What value are investors interested in?
 What determines currency values?
 Can you see any disadvantages to this
system in which currency is traded as a
commodity?
 Can you see any advantages?
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