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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: PMG who wrote (192045)9/15/2002 12:30:47 PM
From: Oblomov  Read Replies (1) of 436258
 
Actually, the FX regime over the last few years has been to reward the currency with the best prospects for real economic growth. This is because of the obsession with relative performance and the realization that holding a currency is equivalent to a claim on that country's assets.

There are other models, of course, such as total return (which is based on capital flows and comparative interest rates) or purchasing power parity. Both were popular in previous days when inflation was the bogeyman. The projected growth model seems more suited for these non-inflationary times.

The common thread with all of the models is that currency performance (in the absence of a single standard such as ...hmmmm...G***?) is based on the perception of relative value. But the valuation regime can switch rapidly. For the forseeable future, however, we are a world awash in debt, with too many bills and too little cash flow.
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