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The Exchange Rate of Foreign Currency in Economic Feasibility Studies


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WOOT WOOT ! ! Read the last paragraph ! !

 

Below are the central controls related to the exchange rate of the foreign currency to convert the project inputs and outputs from foreign currency to its equivalent in the local currency, and that is by calculating the net discounted present value standard and the internal return on investments in economic analysis that governs investment projects that costs excess one million dinars.

 

Estimate the shadow price of foreign currency:

 

  1. It is necessary to put central controls to amend the official exchange rate * to reflect the shadow price of the foreign currency, and that is considered one of the necessary  requirements to implement  the net discounted present value standard and the internal return rate on investment in the economic calculation stated in the instructions, paragraph nine.

The central controls for adjusting market prices distinguished a group of outputs and inputs traded internationally, where the projects production or usage of them is reflected on the abundance of foreign currency in the economy and thus project outputs or inputs used of such are considered purely foreign currency outputs or inputs.

 

 

 

 

* What is meant by exchange rate: the number of units of foreign currency, expressed in dollar per one dinar.

In particular the following outputs and inputs of foreign currency were distinguished:

 

  • Export-outputs.
  • Outputs marketed locally that substitute imports.
  • Imported inputs.
  • Inputs produced locally that usually go to exports.
  • Foreign labor.

According to the pricing rules the value of the output and input (traded) is calculated using export prices (FOB) and import prices (CIF), according to what is listed in the pricing rules.

In other words the pricing rules calculate what the project produces from foreign currency (quantity of exports multiplied by the export price (FOB) in foreign currency or the quantity of substitute imports multiplied by the import price (CIF) in foreign currency, as well as what the project uses from foreign currency and imported inputs multiplied by the import price (CIF) in foreign currency .... etc.).

In a later step, project outputs and inputs must be converted from the foreign currency to its equivalent in local currency (dinars) by using a specific exchange rate for the foreign currency.

 

 

 

  1. Justifications for exchange-rate adjustment: there are a number of important and powerful arguments which support the view that the official exchange rate reduces the real value of foreign currency for purposes of calculating the  economic national profitability for investment projects and hence for the purposes of investment planning. It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, substitute imports and imports... etc.

 

The justifications to call for the use of an exchange rate that is lower than the official exchange rate are:

 

  • The use of an exchange rate that is lower than the official rate is the appropriate action at the investment planning level to translate the country’s economic strategy aiming at stimulating central investments in the sectors that encourage the development of non-oil exports, as well as sectors that encourage the expansion of domestic production base in order to reduce imports and compensate it with local commodities. This helps to reduce reliance on foreign exchange earnings from crude oil exports and increases the share of non-oil sectors in the local production.

 

  • The application of the amended exchange rate on project imported inputs will assist in directing investments away from aggregated sectors dependent on imported inputs and the preference of those sectors that rely on locally produced inputs.

 

  • The use of the amended exchange rate helps to correct the balance in favor of the traded goods sectors compared to non-traded goods.

 

  • The real exchange rate has declined rapidly since the early seventies, through rapid rise of the level of prices and local costs which led by the steadiness of the official exchange rate to change in prices and actual local rate costs that gave an advantage for imported goods at the expense of locally produced goods, meaning that it led to deterioration of the competitiveness of alternative replacement goods and export commodities.

 

  • This action shows that the official exchange rate overestimates the value of the dinar, compared to the foreign currency and from the promoting goods substituting imports and export commodities point of view of.

 

And in support to this view is the state’s utilization and in a broad approach to the customs and quantitative protection policies especially for consumer goods, as well as export subsidies that exports have through an amended export exchange rate.

 

 

  1. Estimate the amended exchange rate of the Iraqi dinar to be used in technical and economical feasibility studies and for (1.134) dollar per dinar. This price should be approved for 3 years until re-appreciation by the competent authorities.

http://www.mop.gov.iq/mop/index.jsp?sid=1&id=308&pid=295&lng=en

 

 

 

 

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WOOT WOOT ! ! Read the last paragraph ! !   Below are the central controls related to the exchange rate of the foreign currency to convert the project inputs and outputs from foreign currency to its

Thanks for the post greeneyedlady.  When I first saw this study bu y the MOP back in 2009,  I was extremely excited.  Unfortunately the date on that site never carries over.  Now being that this study

It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, substitut

What's is the date of that article?  Get'r done...!!  Go RV

Its not a news artical its a The Exchange Rate of Foreign Currency in Economic Feasibility Studies from the ministry of planning of IRAQ. Nice study, now get'r done.

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Thanks for the post greeneyedlady.  When I first saw this study bu y the MOP back in 2009,  I was extremely excited.  Unfortunately the date on that site never carries over.  Now being that this study was done back in 2009,  and has to do with the shadow price of the Dinar in 2009, I'm hoping 4 years later, the value will be even higher.  Here's the link to the article on the MOP site.

 

http://www.mop.gov.iq/mop/index.jsp?sid=1&id=308&pid=295&lng=en

 

Also here's a reference where I posted the same article in December 2012

 

http://dinarvets.com/forums/index.php?/topic/136160-sam-i-ams-latest-update/

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I am thrilled, but I know many news and other articles crop up now and then showing all sorts of numbers. But I can't help wanting it so badly that my first reaction is excitement.  And my second reaction, and third, etc., etc., etc., . . . ad infinitum. haha I think I'll print it and keep it on my wall.  It will add a little excitement to my life--until next week when it comes true. lol



Good stuff!  Thanks!  :twothumbs:

A beautiful child.  But I suppose you already know that, huh?  lol

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:cigar: 

It says (3.208) and then at the end, (1.134)... when was this article written? No date with the link...

 

Nevermind :)

Whether 3.208 or 1.134 - or anywhere in between I'll still shout out GREAT GOOOGLEY MOOOGLEY  :cigar:

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This feasibility study was not the one done in 2009.  The one done in 2009 was done by the Minister of Finance and the final analysis was that the dinar should be valued at about 1.23.  The first time this study appeared was in 2012. 

 

The one thing I focus on in this study is that it calls 3.208 the official exchange rate.  Why would they refer to it as the official exchange rate?  Could the rate already be decided.  If some are right that the Iraqi dinar will be restored to the previous value before the war....well the dinar was worth 3.22 in 1992 prior to the first Gulf War.  Makes you go hmmmmm. 

 

Read the study for understanding.  Why are they doing the feasibility study?

  • Justifications for exchange-rate adjustment: there are a number of important and powerful arguments which support the view that the official exchange rate reduces the real value of foreign currency for purposes of calculating the economic national profitability for investment projects and hence for the purposes of investment planning. It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, substitute imports and imports... etc.

 

They call 3.208 the official exchange rate and then justify (give reasons) why the value should be lower..." for the purpose of calculating the economic national profitability for investment projects and hence for the purposes of investment planning."

 

 

This feaisbility study was done strictly for the purpose of investment planning by the Minister of Planning.  To me, what is important to us is the mention of an official exchange rate. 

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Let me make something a little clearer.  I do not know when this study was done.  I know it is not the same study done in 2009 by the Minister of Finance.  The other thing that I notice was the last statement.

 

"This price should be approved for 3 years until re-appreciation by the competent authorities.'

 

They are saying that the adjusted exchange rate will be used until the CBI re-appreciates the dinar.  Basically they are saying that the value used by the CBI is not the true value of the dinar, but we have known that for a long time.  Even the IMF has said the dinar is undervalue.  The IMF has said that the dinar needed to be on par with the dollar and that was back a few years ago.



http://www.mop.gov.iq/mop/index.jsp?sid=1&id=308&pid=295&lng=en

 

This is where this feasibility study is located.  The one done in 2009 was on the Minister of Finance website and disappeared a long time ago.  I have not checked lately to see if I could find it, but found this one last year when I was looking for the other one. 

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***///

 

....so are these "shadow" numbers (rates) strictly for the purpose of

merely having a number to plug in when doing calculations for potential scenarios and

setting up potential in-country market scenarios in order to be able to structure those markets and eventually

drop in the REAL rate when they finally cut the ribbon and actually open the store....?

 

(whew... we're outta breath.... coulda use some punctuation in that thought!) :P 

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I was trying to remember what the one in 09 stated,  If I remember correctly, the official rate of 2 something and then the adjusted rate was 1.23. 



Well, if this study was done three years ago, that would have been 2010.  Three years laters would be 2013, today.  So they have always been following their plan.  Their ten year plan.     



I may not remember everything, but I have been on this roller coaster since 2006: way back when this website did not exist.  I believe that Iraq has been following their ten year plan to the T and it has been us who were getting it wrong.  There is no way they were ready three years ago.  Their banks weren't ready, their governement was not ready, their laws were not ready, nothing was ready,  Look at everything they have gotten done, how far they have come.  I just hope they revalue like we want them to and we are rewarded for the many years we have waited.   

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Thinking out of the box . This study was produced in 2010 . What the value of 1.134 was for usage in their studies since 2010 for a period of 3 years (2013) ........ Until Appreciation By Competent Authorities ...... ?



You Ladies Keystrokes where quicker than mines .........And I completely agree

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A beautiful child.  But I suppose you already know that, huh?  lol

Read more: http://dinarvets.com/forums/index.php?/topic/151334-the-exchange-rate-of-foreign-currency-in-economic-feasibility-studies/#ixzz2WJjTsyst

 

Thanks Francie!  That is actually me back in good Ol' 1976, lol.  I hope I copied and pasted right.  I am new at this and might need some pointers, lol.

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