I just read a very interesting post from Simon Johnson, which I have discussed a couple of posts below. If you have followed the movement of the market, especially currency market, recently, you may came across many times when there are news title like "Dollar hits record low against euro" or something similar. So all the people, including myself, probably have a question in mind. Why.

Here is an excerpt from Simon Johnson's blog which talks about the dollar.

"Many key currencies, including the dollar, have market determined values. The IMF doesn't try to predict short-run (daily, weekly, monthly etc) movements in market determined exchange rate; that is simply not the business we are in.

We look over a "medium-term" horizon -- by which we mean 5 years out -- and we analyze where an exchange rate is relative to its medium-term equilibrium value. When we say that a currency is "overvalued", that means we think that -- over the medium term (but not necessarily over shorter time periods!) -- a currency will likely tend to depreciate. And when we say a currency is "undervalued" that means -- over the medium term again -- we expect the currency will likely tend to appreciate."

You can read more here.

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This entry was posted by David Choi, on Friday, October 19, 2007. You can leave your response.