Comments on: Why do tourists from third world countries have to suffer when it comes to currency exchange? http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/ Thu, 17 May 2012 21:21:27 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Sageandscholar http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/comment-page-1/#comment-1709 Sageandscholar Sat, 12 Sep 2009 19:44:24 +0000 http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/#comment-1709 It would appear you are confusing currency exchange rates with cost of living. The reasons things tend to cost less in less developed countries than in developed countries is not usually function of exchange rates. Rather local supply and demand are the drivers. If a country is relatively poor - there is less domestic demand for produce. This reduces the amount produced but also the price. Also the labour supply, because of lower demand, lower expectations will work for less. This makes everything cheaper as everything has at least some labour componenet in it. This tends to by a circular thing. Because a country is poor, wages (and for that matter the cost of other inputs eg land) are cheap - this means people earn little and demand does not grow, and so labour remains cheap and on and on. Getting rid of different currencies will not impact this. US dollars are readily accepted in many countries (in parts of Cambodia for instance most merchants have absolutely no interest in the local currency and insist upon US dollars). You still get a great deal more for your money there than in the US. It would appear you are confusing currency exchange rates with cost of living. The reasons things tend to cost less in less developed countries than in developed countries is not usually function of exchange rates. Rather local supply and demand are the drivers.
If a country is relatively poor - there is less domestic demand for produce. This reduces the amount produced but also the price. Also the labour supply, because of lower demand, lower expectations will work for less. This makes everything cheaper as everything has at least some labour componenet in it. This tends to by a circular thing. Because a country is poor, wages (and for that matter the cost of other inputs eg land) are cheap - this means people earn little and demand does not grow, and so labour remains cheap and on and on.
Getting rid of different currencies will not impact this. US dollars are readily accepted in many countries (in parts of Cambodia for instance most merchants have absolutely no interest in the local currency and insist upon US dollars). You still get a great deal more for your money there than in the US.

]]> By: Economics Guy http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/comment-page-1/#comment-1708 Economics Guy Thu, 10 Sep 2009 17:13:31 +0000 http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/#comment-1708 Just to add to RickC Many forces act on the exchange rates of currencies, two big ones are purchasing power, and interest rates. Purchasing Power Currency is valued by purchasing power so that after exchanging the currencies you can buy just as much in both countries. example: A hamburger cost 10 of currency X in country X, and a hamburger in country Y costs 5 of counrrency Y. so the exchange rate would be 1Y for 2X. The exchange rate would be at this rate because at any other rate people would not be willing to exchange currency because they would be loosing purchasing power. Interest Rates Currency is valued also based on interest rates. So that after the exchange rate the return on investment in both countries currencies are the same. Example: If one country X has a higher interest rate than country Y, country X's currency will be more valuable because you can earn more money on your investments when you money is in the form of currency X over currency Y. Another major way in which currency is valued is through the stability of the currency. The United States is one of the most stable countried is the world, so it can be guaranteed that the currency will be stable and valuable tomorrow and the next day and maybe forever. However there are thirdworld countries where the government is not stable and the government risks an unstable economy. If the government falls or is over thrown, the currency my fail and be worth zero, in that case esablish and stable countries like the USA have currency that sells at a premium to third world countries because the US$ is safe. Just to add to RickC

Many forces act on the exchange rates of currencies, two big ones are purchasing power, and interest rates.

Purchasing Power
Currency is valued by purchasing power so that after exchanging the currencies you can buy just as much in both countries.

example: A hamburger cost 10 of currency X in country X, and a hamburger in country Y costs 5 of counrrency Y. so the exchange rate would be 1Y for 2X. The exchange rate would be at this rate because at any other rate people would not be willing to exchange currency because they would be loosing purchasing power.

Interest Rates
Currency is valued also based on interest rates. So that after the exchange rate the return on investment in both countries currencies are the same.

Example: If one country X has a higher interest rate than country Y, country X’s currency will be more valuable because you can earn more money on your investments when you money is in the form of currency X over currency Y.

Another major way in which currency is valued is through the stability of the currency. The United States is one of the most stable countried is the world, so it can be guaranteed that the currency will be stable and valuable tomorrow and the next day and maybe forever. However there are thirdworld countries where the government is not stable and the government risks an unstable economy. If the government falls or is over thrown, the currency my fail and be worth zero, in that case esablish and stable countries like the USA have currency that sells at a premium to third world countries because the US$ is safe.

]]> By: RickC http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/comment-page-1/#comment-1707 RickC Tue, 08 Sep 2009 00:36:40 +0000 http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/#comment-1707 Supply and demand. There is more demand for the currency of a developed nation than the currency of a third world nation. Any currency not backed by some sort of standard (like gold or silver) is only worth what it can do for you. There is no inherent value. Therefore when a bank exchanges currency they are really buying one currency with another currency. So if someone from country X comes to the US and goes to the bank to get US$ the bank eventually convert currency X back to US$. While lots of people want US$ not many need currency X that don't already have it. This is why you get the unbalanced exchange rate. Of course they benefit in the other direction. They have strong opportunities to export or to have foreign investment in their country because of how much of currency X we can get for a $. So when you hear about cheap labor working for $2/day in a sweatshop somewhere, remember that the worker might feel like they are getting paid $100/day because $2 can buy so much. Supply and demand. There is more demand for the currency of a developed nation than the currency of a third world nation. Any currency not backed by some sort of standard (like gold or silver) is only worth what it can do for you. There is no inherent value.

Therefore when a bank exchanges currency they are really buying one currency with another currency. So if someone from country X comes to the US and goes to the bank to get US$ the bank eventually convert currency X back to US$. While lots of people want US$ not many need currency X that don’t already have it. This is why you get the unbalanced exchange rate.

Of course they benefit in the other direction. They have strong opportunities to export or to have foreign investment in their country because of how much of currency X we can get for a $.

So when you hear about cheap labor working for $2/day in a sweatshop somewhere, remember that the worker might feel like they are getting paid $100/day because $2 can buy so much.

]]> By: retired_afmil http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/comment-page-1/#comment-1706 retired_afmil Fri, 04 Sep 2009 15:45:18 +0000 http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/#comment-1706 You ever look, think that the reason is because of graft, inflation, cost of living, printing more money then they can back, among many other reasons in the 3rd word countries You ever look, think that the reason is because of graft, inflation, cost of living, printing more money then they can back, among many other reasons in the 3rd word countries

]]> By: trashy http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/comment-page-1/#comment-1705 trashy Wed, 02 Sep 2009 21:15:14 +0000 http://www.currencyexchangemarket.com/blog/why-do-tourists-from-third-world-countries-have-to-suffer-when-it-comes-to-currency-exchange/#comment-1705 well stay there then, cant please everyone. well stay there then, cant please everyone.

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