The Exchange Rate of Foreign Currency in Economic Feasibility Studies

[Soledad]

Got this article from the "Iraq Ministry of Planning" Website, enjoy it! !

 

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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 ofsubstitute 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.

 

 

2.      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.

 

 

3.      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.

 

 

Sorry again Yota, I am always duplicating postings

[yota691]

Thanks from last year...

The Exchange Rate of Foreign Currency in Economic Feasibility Studies

Started by greeneyedlady, Jun 15 2013 11:29 AM

Read more: http://dinarvets.com/forums/index.php?/topic/151334-the-exchange-rate-of-foreign-currency-in-economic-feasibility-studies/#ixzz3NNk9QRqt

[gregp]

Nice find. Thank You.

[sandfly]

THANKS S I'LL LET THEM HAVE MINE FOR .50

[Nelg]

The amended exchange rate sounds good to me;  $1.134 for each dinar! Bring it on!!!

[dontlop]

It shows who if any one does this type of planning

It's not the imf or world bank , or the usa , or bis , or WTO,

The iraqi central govt decides how they want their payment system set up

Edited December 30, 2014 by dontlop

[chinadawg]

1.13 works.

[Texstorm]

Over works for me to.......come on Iraq

lay your cards on the table, let's see what you really got ! I call !

[SocalDinar]

Isn't this 6 years old?

[DinarDavo]

Isn't this 6 years old?

 

I'm pretty sure I saw this at least 3 years ago....

[Laid Back]

Go Iraq

Go dinar

Go strong $1.13:1

Bring it

[yota691]

searching this goes way on back....probably 6 threads on this article...

XXX)

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Posted 30 March 2010 - 11:03 PM

Not sure what the date is on this but I find it interesting...........

The Exchange Rate of Foreign Currency in Economic Feasibility Studies

Read more: http://dinarvets.com/forums/index.php?/topic/13802-dinar-news-the-exchange-rate-of-foreign-currency-in-economic-feasibility-studies/#ixzz3NNxRa8G1

[army03]

Is this old news or what?

[NWGUY]

Thanks Soledad...old or not, this rate sounds good, and will clear out the use of the dollar. Also, can someone fix the neg for me. On the IPad, and accidentally nagged Soledad. Thanks

Go RV or RI Soon!!!

[staunch]

Got it

[nfire]

still feasible but maybe just maybe!

[jcfrag]

I personally never get tired of reading that article. I don't care how old it is!!! 2010 Shabs was runnin the show, and guess who has returned to the stage again!!!!

Edited December 30, 2014 by jcfrag

[EagleEye]

As best I recall the first report on this was discussed in depth in this forum by "Scooter".... and I agree  either figure mentioned works for me

[ChuckFinley]

I say we are in better shape than when this article was first written. Not saying the rate should be higher, just that as bad as things were then compared to how much we have improved now. A rate of $1.134 should be attainable.

[Freedomwish]

I say we are in better shape than when this article was first written. Not saying the rate should be higher, just that as bad as things were then compared to how much we have improved now. A rate of $1.134 should be attainable.

 

Preach brother Chuck, PREACH!!!      

Edited December 30, 2014 by Freedomwish

[csd9013]

While I could live $1.13, does that rate really make sense since Iraqi's neighbors rates are so much more? After some thought I think they will come in at a rate close to Kuwait.  Just giving my opinion which is worth less than the current rate of dinar.

[TQueezy]

This was way before the majority of the bad Maliki crap that happened. I'd say it's way less relevant to their economy and situation now. May MoP and MoFers are coming up with a new plan that has a new adjusted theoretical exchange rate between the USD and IQD. Hopefully soon we'll see some action on anything.

[KDuesing]

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

Read more: http://dinarvets.com/forums/index.php?/topic/193515-the-exchange-rate-of-foreign-currency-in-economic-feasibility-studies/#ixzz3NQK3NwOi

 

You guys should pay attention more to this statement at the end, why jump in at 1.13 when it will go much higher in 3 years?

[universal_exports]

great, now we are all getting excited and celebrating over an article 18 months old,,,,,,,,

[SocalDinar]

I think this study is actually from Saddam's era. 

 

Here is the link to the MOP document we are looking at

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

 

Here is the link to the planning budget ( also MOP ) which the first link is talking about.

http://www.mop.gov.iq/mop/index.jsp?sid=1&id=295&pid=259

 

I think this is an old document from 1990 and does not relate to the Current Iraq at all. I may be wrong here but have a look for yourself.

 

Go to the link but this is part of it below.

 

Capital Budgeting in Republic of Iraq is evolving into a more structured process with the introduction of a defined policy and procedures that will culminate in a prioritized list of projects for the Capital Budget.

 

In turn, The Guidance For Technical And Economic Feasibility Studies And Post-Project Assessment Of Development Project (Regulations No. 1 for the Year of 1984 and it’s amendment for the year of 1990) has specifies a series of steps to be undertaken, which lead to the completion of a Capital Budget.