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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: sea_biscuit who wrote (70724)10/31/2007 1:16:22 AM
From: mishedlo  Read Replies (1) of 116555
 
If I expect a room to cost 100 Euros per day, I better save up N*100 Euros instead of N*X*100 dollars (N - # of days, X - exchange rate of X dollars per Euro). Maybe the dollar will appreciate against the Euro by the time I make my trip, or maybe it will depreciate, but by saving in Euros, I have taken that factor out of the equation.

When it comes to hotel rooms you can lock in a rate today by paying in advance or getting a guaranteed rate. If you pay today the story is already over. If the rate is guaranteed and you want to pay later at the current exchange rate you simply buy the amount of currency to pay for the room. There is no currency exposure.

The pricing unit is 100% irrelevant whether you pay in advance or lock in a rate and pay later.

Your argument holds no water. You attempted to move saving over time into the equation. It does not belong there. The price of a hotel or oil as well as currencies can all fluctuate regardless of the current pricing currency. Simply put, without locking in price and immediately hedging you would not know how many whatevers (dollars or euros) to set aside each day over time.

Currency risk and pricing risk comes with time.
There is no currency risk or pricing risk in the pricing unit itself.

You lose

Mish
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