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To: yard_man who wrote (244612)	6/9/2003 1:12:27 PM
From: Haim R. Branisteanu	Respond to of 436258

first I made I typo - should read 1,520 (I posted the sell price). In any case you miss the point we are speaking about the real world and not speculators!!! If I buy gadgets form Europe today to be resold in the US (or the other way around) and try to eliminate the effect of currency fluctuations, I am buying EUR with the placement of the order and a put to hedge myself in case the EUR drops and my competitor will buy EUR's cheaper. This hedge represents around 1.5% in additional costs of my product. Let's assume that my business is a distributing company my gross margins are slightly below 18% due to competition and therefore I am ordering JIT to keep inventory low and high turnover (6 to 8 times a year. My net is around 4% to 5% of sales after returns and allowances. My expenses due to currency fluctuation are close to 30% of my profits which end up in the pockets of speculators distributed all over the world. Therefore I am not only loosing 30% of my profits, but also at a 36% tax bracket my government is loosing tax income. My sales are lets say $10 million and on an annual basis I am paying around $8.5 million * 1.52% = apx. $130,000 on currency hedging. (which is pocketed around the world from Indonesia to ME to S. America to Cayman Islands and other tax free heavens etc.) My marginal tax rate is 40% and therefore the state and government are faced with an additional PV of $55,000 budget gap.......... which will pay for 1 to 1.5 nurse in a hospital, or 2 janitors to clean my community streets or 1.5 buss drivers ......... or in other words 2 people without a job Therefore it is bad for me and my business, and my state and country as it expands the budgetary gap (all things being equal). Would the FX fluctuation been lower (below 0.5% a month) the need to hedge will disappear, I will make more money and pay more taxes to the state and country I am living in!! Rest my point!