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FAQs

What causes currency values to fluctuate? The simple answer to this complex question is that supply and demand determine the value of a currency. If demand is high, the value rises, and vice versa. Factors that affect supply and demand include the following:
	Interest rates When a country's interest rates are high relative to elsewhere, money tends to flow into that country as investors and speculators seek to take advantage of the higher interest rates. This "interest differential" boosts the demand for the currency and can cause its value to rise.
	Inflation The causes of inflation are much debated – foreign debt and the increased taxation needed to service it; using high interest rates to attract foreign currency deposits and consequently inflating the cost of money; too much money in circulation causing the currency’s value to decline. When inflation is high, a country becomes less competitive in international markets, causing a drop in exports and a rise in imports, which tends to push the currency downwards. All else being equal, when a country’s central bank prints more money, inflation goes up and the exchange rate (the price of the currency) goes down.
	Balance of trade If a country runs a substantial trade surplus, the result of other countries wanting its exports, a large demand for its currency usually follows and therefore the currency’s value should appreciate. By contrast, if a country relies more on imports and runs a large trade deficit, it must sell its currency to buy someone else’s goods. This puts downward pressure on the currency and usually causes it to lose value.
	Economic growth Countries experiencing a deep recession often find that their exchange rate is weakening. Traders in the currency markets may take the slow growth to be a sign of general economic weakness and "mark down" the value of the currency as a result. On the other hand, economies with strong "export-led" growth may see their currency's rise in value.
	Market speculators When speculators decide, based on special factors such as political events or changing commodity prices, that a currency is going to fall in value, they sell that currency and buy those that they anticipate will rise in value. This can have a significant effect on a currency. Governments are limited as to what they can do to offset the power of speculators because they generally have limited reserves of foreign currencies compared to daily turnovers in the FX market.
	Government budget deficits/surpluses If a government runs a deficit, it has to borrow money, by selling bonds. If it can’t borrow enough from its own citizens, it must sell to foreign investors. That means selling more of its currency, driving the price down.
Statistics on all these items are reported on a regular basis. The precise date and time of the data releases are well known to the market in advance and exchange rates can move accordingly.
What is the difference between speculating and hedging in foreign exchange? Hedging is insurance, its purpose to minimize risk and protect against negative events. In the forex market, hedging can be used to mitigate the effects of currency fluctuations. Thus, a business importing from overseas could purchase a forward contract in the amount of its payable for a future shipment, locking in at the current rate of exchange between, say, the English pound and the US dollar. This hedges the business from unfavourable changes in that exchange rate between now and the date when payment is due. Speculating, on the other hand, is not linked to an underlying business transaction. Speculators deliberately incur risk in the hope of increasing their profit.
Is Jameson involved in speculating? No. Jameson’s service is confined to the traditional FX market and includes three types of transaction: spot, outright forwards and swaps. Jameson does not put our clients' capital at risk by trading in foreign exchange, nor do we deal with clients who speculate. What is economic exposure? There are various types of exposure, all describing a kind of risk. If a company imports from other countries, that company is exposed to the risk of fluctuating exchange rates. Such fluctuations can affect a company's earnings, cash flow and foreign investments. How can I protect myself from economic exposure? The Forward Contract is one of the most effective ways to protect against economic exposure. A Forward Contract is a foreign exchange transaction in which a client locks in a rate for settlement on a date more than five days in the future. It is an agreement to purchase or sell a set amount of a foreign currency at a specified price for settlement at a predetermined future date, or within a predetermined window of time. Closed forwards must be settled on a specified date. Open forwards set a window of time during which any portion of the contract can be settled, as long as the entire contract is settled by the end date.
	How is a Wire Transfer completed? A wire transfer is an electronic instruction for payment. Jameson Bank ’s Wire Department forwards your instruction to our correspondent bank, which transfers the converted funds to the beneficiary’s bank in the destination country, for deposit directly to the beneficiary’s account
	Whom do I call to give feedback on the service I receive at Jameson? Feedback on any service provided by Jameson Bank's Customer Service Agents should be directed to the National Customer Service Manager, at (416) 360-2136 ext. 240.

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