At 09:39 AM 10/23/98 -0400, you wrote: >I'm not sure what the origin of this line of discussion is, but it is now >pretty well accepted, even in mainstream international finance, that the >trading of currencies for the purposes of financing trade (yen for pounds >to buy British sweaters) is largely irrelevant in determining exchange >rates, at least for internationally traded currencies. The annual volume >of currency traded exceeds the world volume of international trade by a >factor of around 100. Here's another way to think about it. I just finished working at Ruesch International, which manages international currency transactions for mid-sized companies who are buying & selling goods & services. In their employee training, they said that roughly 4 out of 5 currency trades is purely speculative (interestingly, roughly 11 out of 12 of these speculative currency trades is a "technical" trade, meaning that the trade is based not on a speculator's feelings about a country's actions but on a mathematical model that uses past behavior to predict what will happen in, say, the next few hours or minutes). Of that remaining fifth, a good amount of that is of a form that's essentially protection against future swings in currency rather than purchases for actually financing a particular trade, and then parts of these currency purchases are often resold to other players when they aren't needed. Factor in other issues, such as people who purchase currency to pay for services where they pass the cost on to others (e.g., patent attnys) and thus aren't particularly price sensitive, and the direct overall effect of trade on currencies is pretty small. Anders Schneiderman
