Monday, April 5, 2010

Hong Kong's currency

I'm following the news about Hong Kong currently because I might be going there before I enter my University in late August. I need to take a breather before I study like there's no tomorrow and honestly, I will !


Yeah, so my friend is heading to Hong Kong as well and he's contemplating on when he should buy the Hong Kong dollars and here I am, trying to advise him on when is the right time.



As you all know, it is more intricate than expected. In fact, it is unpredictable.


Nonetheless, I have some information to share here.


First and foremost, Hong Kong is experiencing a drought and this means that prices of the goods will accrue and as a result, inflation will be a form of culmination as a result of this drought!



The thing about inflation is that there is going to be time lag followed by a rise in imports as foreign goods become cheaper. With a rise of imports, other dollars are bought up and the HK dollar remained in surplus which will result in devaluation of the currency.


This is great for my friend because that way, he can get more HK dollars with the stronger Singapore dollar.


However, the other thing is that HK is going to raise its interest rate as a result of a booming economy. With a rise in interest rates, foreigners will tend to come in and invest in the debts of the country, buying up the debts in HK dollars.



As a result, the supply of HK dollars will drop while the demand still remains high. According to the law of supply, with a fall in supply, and a less than proportionate fall in demand, the price of the good will rise. This will result in the appreciation of the HK dollar.


Once again, the rise in HK dollar will of course take some time due to implementation lag and impact lag.


However, this is definitely not favourable for my friend as he will not be able to get the most HK dollars out of his Sing dollars!


Then again, regarding the first case, where there is inflation, the value of the currency falls but we have to remember that the things get more expensive too.


So confusing right? Alot of factors to take into consideration.


Hence, he has to find the apposite timing to invest in the HK dollars. But then again, he's only changing 500 sing dollars or so, so it's not going to impact him as much as those real investors out there.


Haha, he's more of a micro level investor in this case.


Hahah, okay maybe smaller than a micro level.


Yeah, that's the end, I hope you enjoying my rattling.


Thanks!


Credits -sas, -3poundsofrealestate, -wizardofmacau

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