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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
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What is your take on purchasing Iraq Dinar for investment

Resolved Question:

What is your take on purchasing Iraq Dinar for investment purposes?
Submitted: 3 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 3 years ago.

Dear Friend,

 

For a currency to strengthen, there are many factors responsible. For IQD (Dinar) to be equal to a dollar, it requires a tremendous weakening of the dollar. The dollar exchange rate will fall (or any other freely traded currency for that matter) for a combination of 3 reasons, all else equal:

 

1. RELATIVE interest rates are falling/ relative increase in money supply growth rate

2. RELATIVE productivity is slower

3. RELATIVE attractiveness of US investments is declining.

 

Each of these things changes the RELATIVE demand or supply for dollars, which in turn changes the value.

 

1. Interest rates in the US used to be relatively higher compared to the rest of the developed world. The US recovered from the 2001 recession much faster then Europe, Canada and Japan. In those countries, the central bank interest rate was still very low, between 1 and 2 percent

 

2. The Euro, only created in 1999, has now established itself as the other alternative reserve currency for foreign central banks. they buy Euros in addition to dollars, lowering the relative demand for dollars.

 

3. The Sub prime mortgage fallout in the US, foreign investment in commercial backed paper that was backed by these mortgages is fleeing the country and as this happens, the demand for dollars lessens.

 

4. The recent FED interest rate cuts. The FED does not just mandate interest rates. What it does is it "targets the rate." The funds rate is the rate that banks lend each other money. To control this rate the FED puts more or less money into circulation.

 

All the above factors have caused the $ to a decline against major currencies across the globe but that has been countered with he FED control of the interest rates and taken measures to take care of the economy almost on a continual basis.

 

Therefore, due to all these reasons the USD has traded in a range of -5-7% and never lost more than this on a Net Basis. For a IQD to become equal to a dollar, a dollar must weaXXXXX XXXXXttle over 1000 times or in other words the IQD should become stronger by over 1000 times to become equal to a dollar. For this, no such developments that should cause such a strength in the IQD or such weakness in the USD are likely as the value and the supply of the paper is constantly controlled by FED very scientific and professional manner. At the most, going by the historical studies and the current economic condition of both the nations, at the most the IQD is likely to gain by 2-3% in coming years and not 1000% that would be required to become to equal to a dollar.

 

I do not see the strengthening of DINAR in near term to such an extent.

 

References:

http://www.forexrate.co.uk/forexquotes.php

http://www.economywatch.com/exchange-rate/dinar.html

http://answers.yahoo.com/question/index?qid=20080111101334AAhM0vZ

http://www.chicagofed.org/consumer_information/strong_dollar_weak_dollar.cfm

http://www.economywatch.com/exchange-rate/dinar.html

 

Hope this helps..

Regards,

Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3906
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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