International Currency Exchange Rate

Finance allah shmoop How do foreign parties affect transaction costs

They make them higher Yeah buying a basket of cheese

from the local safeway or alberts in store in paying

for us dollars is way easier and cheaper Transactional ethan

buying a similar basket of cheese from france and paying

for it in euros and france So other than in

world war two a big one is generally perceived as

being reliable stable So in the case of cheese dealing

with frances easy relatively easy anyway But what happens when

you want a similar cheese basket from the somalian warlord

christmas collection gift basket of cheese for the holidays Huge

risk not just in currency but in shipping in a

well in your life And trust of course like which

warlord will be on top that week If you pay

the money up front like they demand will the cheese

ever show up And if it does you know Will

there be a bomb in it Or another warlords head

Or maybe there's some other body part on anyway So

dealing across or outside of u S borders carries more

risk When you transact and surprise surprise it carries more

reward as well If you're an investor think about buying

u S treasury bonds the safest most norman of investment

you could make They pay like in two or three

percent return for a five year bond And well if

you make the same investment in bonds backed by the

french government these days well they pay about four and

a half percent Why well more inflation in france More

risk One of my bonds backed by the sum holien

government Yeah like there You've got to get one hundred

ninety seven percent interest rate and good luck collecting Should

those bonds ever default Note that there's a lot more

risk being a u S citizen investing in bonds overseas

versus a local buying locally that is many countries give

priority to their own citizens in collecting on government debt

You know debts owed by their own country versus them

damn foreigners throwing their capital in the mix The u

S is distinctively egalitarian in this way going out of

its way to treat all investors all around the world

equally the same way they would treat their own citizens

are u S citizens investing in u S Securities and

as a result of being extremely fair in equal ish

we've attracted mounds and mounds of capital from all over

the world They trust us Yeah it's where so much 00:02:22.41 --> [endTime] We print it right onto our currency Nothing