We often assume that our economy is the only economy we have to worry about. More and more people are learning that we rely on other economies as well. Everything from imported or exported goods to the worth of our currency, to our investments, are all impacted by economies of other countries. Today we take an in-depth look at how our money is affected.
Investing Can Make Or Break You
Let’s say you are thinking of investing in an Iraqi company that will specialize in fertilizers for gardens in arid climates. The success of that business is going to rely on the Iraq economy and how strong their currency, the dinar, is. If they are experiencing a recession or depression, the likelihood that the company will be a success will be much lower. Unless of course they are aiming to sell to other countries who don’t have that sort of resource, but it will still be a slower success. If the economy is exploding with growth and a strong currency, they are likely to gain ground quickly and be a huge success.
If you think your homegrown investment is safe based on the US economy, think again! If you are investing in a business that primarily exports items to other countries, that company is relying on a good international economy to keep growing and moving forward. If the country, or countries, is experiencing financial hardship, it can slow the export business and they could lose money and business.
Prices Fluctuate
The United States is one of the largest importers on the planet. While many people now call for more “made in the USA” items, we find that even if they are assembled in the US, most of the materials used are imported in. This has a significant impact on the cost of what we are buying at the local Walmart or department store will cost.
In Asheville North Carolina, there is a company that makes it own fabrics of natural cotton and manufactures clothing for a local shop. Shirts will begin at around $40. Many people can find that if they go to the local discount store, they can find another shirt (more than likely from China or another Asian country) that will be more than half the cost.
Why does an imported shirt cost less? The cost of the materials is significantly less in another country because of their economy. At the time of this writing, the Chinese Yuan is worth 15 cents in American currency. Meaning we pay 15 cents to their dollar for each item we purchase from them. Meanwhile, the shirt manufactured here on US soil may cost around five dollars per shirt on wholesale, requiring a significant markup to a business in order to make a profit and stay in business.
Since currency never stays at the same worth, we also find that is why we see price fluctuations in the store. If the Chinese Yuan were to increase in value, there would be more cost added to our clothing items. At the same time, demand changes prices as well to take advantage of profitability.
Demand Matters
Have you ever noticed that around Christmas and Easter, the price of eggs goes up? Christmas is a high baking season and Easter is often celebrated with colorful dyed eggs hidden around yards and homes. Since so many people need more eggs than usual at that time, prices will rise. If there is an abundance of items that people aren’t buying, prices will drop just to get them off store shelves. It’s why you will find eggs cheaper at other times of the year and holiday décor be heavily discounted right after the holiday has ended.
It also applies to electronics. When something comes out, let’s say an iPhone, and there is a tremendous buzz about the electronic we will see high prices. Those prices eventually come down after the product has been saturated into the market and less demanded.
Before you invest, learn the stock market to make the most of your investment. Before you buy, pay close attention to imports and their prices.