| Understanding the Significance of the Yen Rate |
| Exchange Rates 101 If you have never lived overseas, it may be difficult to understand the significance of currency exchange rates. We never understood, nor did we even care because it had no relation to our daily lives--until we got here, that is. Now it is just a part of life. Nothing to panic about, but definitely something to keep an eye on. As people who support overseas missionaries, whether you know it or not, you are also affected. You may not have thought about it this way, but if your missionary gets paid in his home currency (US dollars for us), the amount your missionary receives from you changes depending on the exchange rate. The amount you give on your side stays the same, but it's value will either go up or down depending on the current rate. This concept can be difficult to understand, so here is my attempt at an explanation... Four Common Items Let's say we just finished another furlough, had one more Whopper with cheese before getting on the plane, and returned to Nagoya with all we needed to cover our daily expenses. We raised our needed support based on a yen rate of Y120:$1.00. Now let's look at four common items for the example (neither exact nor real figures) At Y120:$1:00, let's say... - $1.00 buys 1 can of Coke (i.e., if a Coke in Japan costs Y120) - $10.00 buys your favorite meal at a local restaurant - $100.00 buys a one-way ticket to Tokyo by bullet train - $1,000.00 pays for rent Weak Dollar? All is fine as long as the rate remains around Y120:$1.00. But for reasons that only Alan Greenspan can understand, what if the worth of the dollar becomes weak in relation to the yen? With a weak dollar, a dollar buys less yen with each point lost. Now let's say that the yen rate goes down to Y104:$1.00. How does this affect our example? - Your Coke now costs $1.16 - Your favorite meal at the local restaurant becomes $11.60 (fortunately, no tipping in Japan!) - A one-way ticket to Tokyo? You now need $116.00 to get there - Unbeknownst to your landlord, your rent just went up to $1,160.00 So just looking at these four items, if the yen drops from Y120 --> Y104, you are now short $177.76. Now do this math with each and every item you buy with yen and you will see the significance of the exchange rate. Basically, everything suddenly costs more and so you now need to make adjustments by either cutting back or trying to raise more support, or probably both. (Note: if the rate goes to Y121 or over, you conversely get a nice raise ;-) In a nut shell, that's it. Make sense? FIVE ways to Multiply your Giving Exchange Rate Finder Today's Exchange Rates Home |