Simple Method to determine Forex rate yourself

Here's something probably you could relate to.

When I need to go to the States for business trip, I go to the Pengurup Wang Berlesen aka Licensed Money Changer and wonder - should I look at the Buy rate, or the Sell rate? What if I have US dollars in hand and need to change that to Ringgit instead?

Very easy actually. You just need to remember - the Pengurup Wang always profit; means you are always on the losing side. That's just how they make money. It's strictly business.

Take Australian dollar - BUY 3.2284 and SELL 3.2312. Since I know I will be getting less than AUD 100 for MYR 100, I need to divide either of the rate. But which one?

Ask yourself this - which one, if used as divisor, will yield a smaller number?

Simple maths right - you divide by a larger number (divisor) to obtain a smaller number. "Smaller" in this sense means you are on the "losing side". In this case, I will divide MYR 100 with the SELL rate - 3.2312, which yield, AUD 30.95.

Cost Push vs Demand Pull Inflation

These are the 2 types of inflation. I can assure you that you and me have definitely encountered these on daily basis, albeit indirectly.

Cost-Push Inflation = a decrease in aggregate supply

Cause

a) Increase in labor and overhead cost

b) Increase in raw material prices as they become more scarce

Explanation
Because the production costs have increased, producer has 2 choices - either to produce less quantity, or decrease wage rates to retain the price, while still remains profitable. The former is usually not desirable.

Unfortunately, when wage rates cannot be reduced anymore, while the same volume or more is needed, consumer will have to bear the cost of this price increase.

The indicator for this is Producer Price Index (PPI)

Examples

1. Iphones and Ipads are being outsourced for mass production at Foxconn China due to low labour cost.
2. Manufacturing plants for US companies are set up in Penang instead of in the States because comparatively, salary paid to an equivalent job level will be higher in the States.
3. Surge in timber demand and prices post Japan tsunami

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Demand-Pull Inflation = an increase in aggregate demand

Cause

a) Increase in money supply

b) Increase in price level of goods in the rest of the world

Explanation
Increase in money supply has to do with consumer spending. When more people can afford and willing to purchase goods, the available supply in the market become lesser if production output cannot keep out with increasing demand. When something become scarce, only the highest bidder can possess it. From the seller perspective, he can afford to sell his goods at a higher bargain price.
The second causes has to do with diminishing purchasing power of a nation relative to the rest of the world. It means if our foreign exchange rate (and economy) is weak, it would cost us more to buy imported goods.

Examples

1. Land is scarce in the Penang island, yet, more people desire to stay in Penang as the population grows. As a result, housing developers can charge a premium selling price for landed properties.
2. An imported item from United States will cost more in 2009 when the exchange rate is RM 3.50/U$ compared to current home currency of RM 3.00/U$.