Republican aggresors grow skeptical of free trade

[Dauphin]

Originally posted by Kidicious
Anyway, what you said is true. I was thinking about direct sales, like Ford having a dealership in Japan and selling trucks directly there. I don't know if that is common.

Do you mean manufactured in the US and shipped to Japan? Either way, the currency issue is reduced to an extent because export sales are in Yen but so too are costs (sales staff, advertising, logistics) denominated in Yen. You can also use the Japanese profits to grow the Japanese business and only remit funds to the US at a time of of your choosing.

[Kidlicious]

Good point.

[Dinner]

Figuring out how and when to remit funds to get the most out of the transaction is a whole business in and of itself. My aunt has been doing that for Coca-Cola for around 20 years. From what I've seen (basically what she or her coworkers have told me over the years) with different tax rates, laws, and currency movements it can get extremely complicated very quickly. Especially if you throw in the long term cash needs of various different branches.

[DAVOUT]

Originally posted by Dauphin
No, not always, and often not. It's why many companies have foreign currency accounts or otherwise match their foreign currency costs and receipts.

The foreign currency balance of a foreign currency account has not been been created ex nihilo, and matching foreign currency costs and receipts does not change anything to my statement. At one time a given amount of a given currency has been sold because it was received as paiement of an invoice billed in this currency, or bought because it was needed to pay an invoice billed in this currency.

[Dauphin]

Originally posted by DAVOUT

The foreign currency balance of a foreign currency account has not been been created ex nihilo, and matching foreign currency costs and receipts does not change anything to my statement. At one time a given amount of a given currency has been sold because it was received as paiement of an invoice billed in this currency, or bought because it was needed to pay an invoice billed in this currency.

A manufacturer in the US sells a million widgets to Spain for €1million. The €1 million is used in France to set-up a new outlet store from which to sell its goods.

At what point did either the Spanish importer have to convert currency, or the American manufacturer have to convert currency?

(Of course there are certainly issues of value of goods in different currencies/countries and so better ways to raise funds or markets to sell in, but that is an aside business decision.)

[DAVOUT]

Do you really believe that your example describes the ordinary foreign trade transactions? Have you examples of companies significanrly involved in foreign trade investing 100% of their exports value in foreign countries years after years?

[Dauphin]

Do you really think that large companies who make up most of the trade don't ever do something that is fundamentally similar?

[DAVOUT]

Yes, sometimes, something, but the general case is not this one.

[Dauphin]

DAVOUT, consider this:

At first, assume a £1: €1.50 rate for simplicity.

A Frenchman living in the Pas de Calais buys some local produce for €1,000. He exports the goods to Britain by way of selling to or at local street markets in Kent where he can sell the produce for £1,000. He has a choice of buying his transport (the Chunnel costs) in pounds (£100) or euros (€150), and using local market sellers who want payment in pounds (£100) or he can pay euros to his own staff to go over there for the day (€150).

Now. If he chooses to pay everything in euros, he has £1,000 which he has to convert into €1,500, and then pays €300 costs. He has made €200 in profit. If he pays costs in pounds, he then has only £800 which he has to convert into €1,200. He has made a profit of €200.

Can you see that there is the same outcome in this scenario, but the amount of currency transaction is different in each case? The need has been mitigated and arbitrarily so*.

Now, you can adjust the exchange rate in effect on any given day - which will not effect the cost of transport or cost of paying staff which are fixed - and find that those who are averse to risk will choose to pay in pounds, and so generally the total value of exports is not as much as the total value of currency transaction.

* So while of course currency conversion occurs, it is not as simple as saying exports require you to convert currency - doing that loses all reference to "how much?" and ignores the fact that many companies avoid it. Which was my original point.

[Kidlicious]

Originally posted by Dauphin



A manufacturer in the US sells a million widgets to Spain for €1million. The €1 million is used in France to set-up a new outlet store from which to sell its goods.

At what point did either the Spanish importer have to convert currency, or the American manufacturer have to convert currency?

(Of course there are certainly issues of value of goods in different currencies/countries and so better ways to raise funds or markets to sell in, but that is an aside business decision.)

Doesn't the manufacturer have to start converting currency when there are no new outlets to set up and it is still selling widgets?

edit: I get your point though that an exporter might be able to use the currency instead of convert it.

[DAVOUT]

Originally posted by Dauphin
DAVOUT, consider this:

At first, assume a £1: €1.50 rate for simplicity.

A Frenchman living in the Pas de Calais buys some local produce for €1,000. He exports the goods to Britain by way of selling to or at local street markets in Kent where he can sell the produce for £1,000. He has a choice of buying his transport (the Chunnel costs) in pounds (£100) or euros (€150), and using local market sellers who want payment in pounds (£100) or he can pay euros to his own staff to go over there for the day (€150).

Now. If he chooses to pay everything in euros, he has £1,000 which he has to convert into €1,500, and then pays €300 costs. He has made €200 in profit. If he pays costs in pounds, he then has only £800 which he has to convert into €1,200. He has made a profit of €200.

Can you see that there is the same outcome in this scenario, but the amount of currency transaction is different in each case? The need has been mitigated and arbitrarily so*.

Now, you can adjust the exchange rate in effect on any given day - which will not effect the cost of transport or cost of paying staff which are fixed - and find that those who are averse to risk will choose to pay in pounds, and so generally the total value of exports is not as much as the total value of currency transaction.

* So while of course currency conversion occurs, it is not as simple as saying exports require you to convert currency - doing that loses all reference to "how much?" and ignores the fact that many companies avoid it. Which was my original point.

My original point was that exports generate a need of currency conversion for the exporter or/and the importer. Your original point, illustrated by your example, is that, in some cases, currency conversion is limited to 80% of the amount received for the exporter, and you forget the importer, most of the job being done by the exporter. You will accept that this is not representative of the majority of the international trade.