Foreign Exchange Rate

Foreign Exchange Rate (FOREX) is the

price of one unit of foreign currency in
terms of domestic currency in the
specific country
Official Currency – currency unit
guaranteed by the government
Philippine peso- official currency in the
Phil with its value guaranteed by the
Philippine government
 Foreign Exchange Rate
Each Phil paper bill has this--
“Ang salaping ito ay bayarin ng Bangko
Sentral at pananagutan ng Republika
ng Pilipinas” (Each Phil paper bill has
signatures of the Phil president and
BSP Governor). Phil currency is
issued by the BSP, the central
monetary authority in the Philippines.
 Foreign Exchange Rate
US dollar $- official currency of the US
“This note is legal tender for all debts,
public and private” (from US paper bill
with signatures of Treasurer of the US,
and US Secretary of the Treasury)
Questions: What is the official currency
of the European Union; South Korea;
Thailand; Malaysia; Indonesia?
 Foreign Exchange Rate
Common characteristic among currencies is
the issuer—usually the central monetary
authority or the Department of Treasury for the
country. Paper bills or paper notes are
liabilities of the issuer. The issuer, and
authorized institutions (like banks), authorized
to handle domestic and foreign currencies, can
give the value of the paper note in other
denominations, or in equivalent value to a
foreign currency.
 Foreign Exchange Rate
Exchange Rate (ER) is the price of foreign
currency in terms of domestic currency
The simple formula to get the FOREX change,

Change in FOREX= Current FOREX- Previous

FOREX
If the change is positive (+), domestic currency
depreciation
If the change is negative (-) domestic currency
appreciation
 Foreign Exchange Rate
If the FOREX change is positive, the change is
Depreciation of local currency over the foreign
currency. Value of local currency is lower
compared to foreign currency, need more local
currency to buy one unit of foreign currency.
If the FOREX change is negative, the change is
Appreciation of the local currency over the
foreign currency. Value of local currency is
higher compared to foreign currency, less local
currency to buy one unit of foreign currency.
 Foreign Exchange Rate
Sample computation:
In May 2016, the FOREX of the Phil peso over
the dollar is P46/1US dollar. In June 2020, the
FOREX settled at P49/1US dollar. Compute for
the change in FOREX and classify it.
Change in FOREX= Current FOREX- Previous
FOREX = P49/1US dollar- P46/1US dollar
=P3 per 1 US dollar, Peso change is
P3/ US dollar. Phil peso in 2020 depreciated
against the US dollar, based from May 2016
FOREX level.
 Foreign Exchange Rate
1 kilo of rice = P25, then 1 kilo of rice = P50
Peso can buy less rice, Phil peso depreciated
against rice, pay more pesos to buy rice
1k rice= P25, then 1 k rice= P20 peso can buy
more rice, Phil peso appreciated against rice,
pay less pesos to buy rice
Old ER P50 per 1US$
Current ER P52.0 per 1US$
Peso change is ______, the Phil peso
__________ against the US dollar
 Foreign Exchange Rate
Concept of depreciation in value can also be
used in other examples, such as rice.
Assuming the old 2018 price of rice is P25
per kilo, but the prevailing price is now P50
per kilo. With a budget of P100, one can
buy 4 kilos of rice in 2018, but only 2 kilo in
2020. Then, the Philippine peso depreciated
against rice, less amount of rice to buy from
the same budget, or the need to pay more
pesos to buy same amount, 4 kilos of rice.
 Foreign Exchange Rate
Another example:
During regular days, a bag of chocolates is
sold at US$ 2 per pack. On July 4, a price
drop, a bag of chocolates is sold at 1US$.
The price reduction of 1US$ per bag means
the US $ appreciated against chocolates,
less dollar to buy same amount, 1 bag of
chocolates.
 Foreign Exchange Rate
Types of FOREX systems:
1.Fixed Exchange Rate System or fixed FOREX
system means the FOREX is pegged at a
certain level by the government. Usual
example, Chinese government pegs the
yuan’s FOREX level against the US dollar. For
example, Chinese government declares that
its FOREX is 12 Chinese yuan against 1 US
dollar. This FOREX level is followed in all its
foreign transactions.
 Foreign Exchange Rate
2. Flexible Exchange Rate or flexible FOREX
system refers to the level of FOREX as
determined by the demand and supply of the
local currency and the US dollar in the
currency market. For example, in the
Philippine Dealing System (PDS), banks in the
Philippines will bid against other banks in
buying and selling of US dollars. The result of
the bidding and buying/selling in the PDS sets
the FOREX rate level for the next business
day.
 Foreign Exchange Rate
Changes in FOREX under the Flexible FOREX
system
1.Depreciation occurs when additional amount
of local currency is required to buy the same
amount of foreign currency like US dollar. As
a guide to computation, the resulting change
is positive, or more Philippine pesos to pay
per unit of US dollar
a) Earners of foreign currencies benefit from
depreciation, such as families of OFW, who
 Foreign Exchange Rate
a)Earners of foreign currencies…. .who
receives more Phil pesos per dollar
remittance during depreciation. Same case
for exporters, who get more peso income for
every US dollar of export earnings.
Conversely, in peso depreciation, importers
pay more pesos to pay for dollar payables, e.g.
for oil imports. Phil government pays more
pesos for foreign loans. Such costs is part of
the annual government budget/ appropriations.
 Foreign Exchange Rate

b) Debtors of foreign currency transactions,

benefit from appreciation, such as importers,
and countries with foreign loans. For every
dollar of import payment, or every dollar of
loan payment, the debtor will pay less pesos.
Conversely, OFW remittances and export
earnings will be exchanged for less amount of
peso equivalent.
 Foreign Exchange Rate
Philippine banks, and money changers, with
approved foreign currency functions can
change foreign currencies for Philippine
pesos. The Bangko Sentral ng Pilipinas, the
central monetary authority in the Philippines,
gives the licenses of banks and authorized
money changers, to ensure the fairness and
less volatility of the FOREX rate levels in the
Philippines.
 Credit
Credit- ability to acquire something of value,
e.g. goods, securities or cash, in exchange for
a promise to pay back at a future time. Credit
came from the Latin word “creditum” which
means trust. Two parties involved- the creditor
who provides the thing borrowed and the debtor
who receives it and assumes the obligation to
pay. (Thus, terms credit or debt are mirror
image.) Biggest credit transactions involved the
use of money from banks and other financial
institutions.
 Credit
Elements of Credit
1.Trust and confidence- confidence of the
creditor that what he lends out will be paid
back in the future by the borrower.
2.Future Time- future time is involved, in hours,
months or even years.
3.Risk- uncertainty faced by creditors, whether
he’ll be paid back in full, partially, or none at
all. Risks is minimized when the loan is
secured.
 Credit
Classification of Credit
According to Type of Use-
1. Consumer credit- loans to finance
commodities for personal consumption, e.g.
credit card use.
2. Real estate loan- to buy a house, house
repairs, or house construction
3.Fixed Asset Credit - credit is extended to
companies to purchase fixed assets-- land,
building, or equipment for business use.
 Credit
4. Agricultural Credit- loans to acquire
fertilizers, pesticides, seedlings, transport of
agriculture products and farm improvements.
Debtors are farmers and creditors are rural
banks.
5. Commercial Letter of Credit (L/Cs) are
loans to facilitate international trade. Letters of
Credit (L/Cs) is issued by importer’s bank,
which guarantees payment to the exporter up
to a specified amount.
 Credit
Importer’s L/C requires payment in importer’s
currency, Exporter’s L/C requires payment in
exporter’s currency.
L/C is a letter of notification of a bank
addressed to one or more of its
correspondent banks certifying that the
person named herein (importer) is entitled to
draw credit up to a certain maximum amount,
under certain conditions.
 Credit
With L/Cs, the importer’s bank add its own
credit to the credit of the buyer (importer) who
has limited credit. Parties to the L/C-
(1) importer who applies L/C to finance trade
shipment; (2)importer’s bank (country of
importation) which issued L/C upon request of
importer; (3) exporters who sells good on
credit, the beneficiary and (4) exporter’s bank,
that confirms the credit on request of issuing
bank (importer’s bank
 
 Credit
If confirmed by importer’s bank, the exporter’s
bank confirms and gives letter to exporter
(beneficiary).
Types of Letter of Credit
1.Commercial Letter of Credit is a standard L/C,
known as documentary credit.
2.Revocable L/C can be altered at any time by
the issuing bank/importer without informing the
seller. Not used frequently, no shield to seller
(exporter)
 
 Credit
Types of Letter of Credit
3. Irrevocable L/C no alterations can be done
on the L/C without consent of the seller
(exporter)
4. Back to Back L/C when two L/Cs are
issued, one by the bank of the buyer
(importer) to the intermediary, and second by
the bank of an intermediary to the seller
(exporter)
 Credit
Types of Letter of Credit
5. Red Clause L/C partial payment before the
goods are shipped, an advance against a written
confirmation from the seller and the receipt.
6. Green Clause L/C same features as red
clause L/C, but the only difference is proof of
warehousing is also given.

 
 Foreign Exchange Rate
(FOREX) Value in Phil Pesos
Apr 2021 Nov 2020 Change
US Dollar 48.5790 48.1020

Jap Yen 0.4429 0. 4614

UK Pound 66.5872 64.2739

HK Dollar 6.2460 6.2061

Euro 57.8090 57.3232

 Foreign Exchange Rate (FOREX) Value in Phil Pesos
Apr 2021 Nov 2020 Change
Can Dollar 38.7702 36. 9646

Sing Dolar 36.2233 35.9372

Aus Dollar 37.0075 35.4079

Thai Baht 1. 5461 1.5902

UAE Dirham 13.2267 13.0968

Bahrain Dinar 129.005 127.5814

 Foreign Exchange Rate
(FOREX) Value in Phil Pesos
Apr 2021 Nov 2020 Change
US Dollar 48.5790 48.1020 0.477

Jap Yen 0.4429 0. 4614 -0.0185

UK Pound 66.5872 64.2739 2.3133

HK Dollar 6.2460 6.2061 0.0399

Euro 57.8090 57.3232 0.4858

 Foreign Exchange Rate
(FOREX) Value in Phil Pesos
Apr 2021 Nov 2020 Change
US Dollar 48.5790 48.1020 0.477

Jap Yen 0.4429 0. 4614 -0.0185

UK Pound 66.5872 64.2739 2.3133

HK Dollar 6.2460 6.2061 0.0399

Euro 57.8090 57.3232 0.4858

 Foreign Exchange Rate (FOREX)
-The Phil peso depreciated against the US
dollar by 0.477, more Phil pesos to buy US $
-The Phil peso appreciated against Jap Yen,
less Phil pesos to buy Jap Yen.
-The Phil peso depreciated against the UK
pound, HK Dollar and Euro, more Phil pesos to
buy UK pound, HK Dollar, and Euro.
-Because of Forex change, goods became
more expensive– from US, Japan, UK, HK and
Europe, but cheaper to buy Japanese goods.