Case: Foreign travels, Foreign-Exchange Travails
Case: Foreign travels, Foreign-Exchange Travails
I was traumatized by exchange rates long ago. It was in 1936, to be exact, when I had a course in international finance with the redoubtable Prof. Jacob Viner. I could never understand why the exchange rate on the British pound was $4.88, whereas the rate on the French franc was 20 to the dollar. If the pound was $4.88, why wasn't the franc $0.05? Or if the franc was 20 to the dollar, why wasn't the pound 0.205 to the dollar? I just didn't know which country was up. So I gave up thinking about the subject for a long, long time.
When I can't avoid the subject it still baffles me. For example, I do some work on the Israeli economy. Now, when Americans say that the exchange rate went up they mean that the dollar rose relative to other currencies. But when the Israelis say that the exchange rate went up they mean that other currencies rose relative to the shekel. Baffling! Maybe it's because they read from right to left.
My allergy to exchange rates really hurts when I have to meet a foreign currency hand to hand, as was seen on a recent trip to Israel and France.
From Shekels to Francs Leaving Israel to fly to Paris (see Map 7.1) I had
a handful of leftover shekels. I decided to exchange them for francs. Going from the exotic shekel to the romantic franc without passing through the humdrum dollar made me feel like a sophisticated jet-setter.
I received 279 francs, which somehow seemed enough for taxi fare from Charles de Gaulle Airport to my Paris hotel. I also got a printout saying that the rate was 0.39. Since I thought that the shekel was worth about 50 cents and the franc about 20, it seemed reasonable enough that a figure like 0.39 should appear somewhere, although I wouldn't have bet on doing the algebra right the first time.
Five hours later I am speeding along in a French taxi and the taximeter is clicking off two francs at an even more furious pace, alongside a sign saying "No checks accepted." I worry about whether my 279 francs are going to survive this race, at the same time trying to remember whether I should multiply the francs by 0.2 or by five to get them into my native currency.
To my relief, the taxi and the meter slow down as we enter the XVI Arrondissement, and the meter says only 132 when we stop in front of the hotel. "One hundred and sixty," says the driver. (All this is a blur in my mind now, and I'm not sure what language we were using. I suppose English.) "Why?" I ask. "Luggage," he explains. I am so annoyed and angry about this, as well as by his general manner, that I determine to give him no tip. I had barely reached the sidewalk, however, when I realized that I had only 19 francs left. I had
'Herbert Stein, "Foreign Travels, Foreign-Exchange Travails," The Wall Street Journal, 27 August 1990, p. A10.
given the driver 260. But he assured me that I was mistaken. He showed me that in one pocket he had a lot of money, which was his, and in the other pocket he had a little, which was what had been mine. Before we could pursue the subject he drove off.
The receptionist in the hotel was philosophical. She explained that the event was not uncommon and there was nothing I could do about it.
So there my wife and I were on a Sunday afternoon, Ascension Day, in a small hotel, sans restaurant, in a quiet part of Paris, having had no dinner and with about $2 in francs, after tipping the bellman. I asked the receptionist, who for some reason reminded me of A Tale of Two Cities, whether she could cash a traveler's check. She could, and the rate was 4.9. She saw my surprise and explained that the rate had gone down (this was three days after the invasion of Kuwait) but maybe it would go up next week. She was still philosophical. "It's only a few centimes," she said. Later in a calmer mood I figured out that 4.9 is 2 percent less than five.
All the money amounts are trivial. This story is not about amounts; it is
about confusion, mental anguish, humiliation. It is about states of mind, which is, after all, what economics is all about.
Armed with $50 worth of francs we set out to find a light supper. Fortunately, French restaurants, brasseries, and bistros all have menus posted outside, so you can review your options before committing yourself. Even with $50 my options were not great. But the second time around the Place I realized the solution to my problem was the brasserie whose menu welcomed credit cards. There I would not have to worry about running out of francs and someone else would have to figure out how much my bill was in dollars. (When I did get my credit-card bill at home my franc expenditures had been translated into dollars at a rate more favorable to me than any I encountered in Paris.)
The next morning we went to the bank to change money. There was the usual bulletin board with exchange rates in two columns—Vente and Achat. Which was I, buying or selling? I was selling dollars and buying francs. The bank was selling francs and buying dollars. I knew that whichever it was, I was going to get the smaller amount. And even the smaller amount was 5.2 with some more decimals, much more than La Tricoteuse at the hotel had paid. In fact, the rate was 5.27719 francs to the dollar. I cashed only $50 because I still had the money I had exchanged at the hotel. Also, hadn't I learned that when the oil price rose the dollar did too, because people had to pay for oil in dollars? Probably I would get a better rate the next day.
The net I received was 234.21. The commission and value-added tax had eaten up 29.61 francs. Later, I figured out the net rate had been 4.6842, almost 5 percent less than I had gotten from La Tricoteuse, whom I had unjustly maligned.
We now had almost 500 francs and started out to spend them. Our first stop was a fruit stand. Have you ever tried to calculate in your head what is the price in cents of two oranges when they cost 35.75 francs per kilo and you do not have access to scales? Or how much money you should give the cashier when you are not immediately sure whether quinze is 15 or 50? You hold out a handful of change and let her pick what she wants. She seems honest.
Having managed to get rid of quite a few francs, we undertook to get more the next morning. I proposed to La Tricoteuse that she should sell me some, but she declined. I think she had an agreement with the bank next door not to do any banking during hours when the bank was open. At the bank I discovered that, contrary to my speculation about the price of oil, the dollar had declined from 5.27719 francs to 5.22027. But we had learned about the commission, which was a constant, so by buying $200 worth we reduced (raised?) the net price to 5.072.
Now we were really flush with francs, and I had a sudden insight into the truth of monetarism. The idea is that individual behavior is significantly
governed by the possession of a certain kind of asset, called "money." Here I was with dollar currency, traveler's checks, credit cards, and checks on an account in an internationally known bank. With a call to my broker I could get a telegraphic transfer of a large amount of money from a money-market fund. Compared to my total liquid assets, the amounts of French currency I ever held were minute. But the difference between feeling that I had little French currency and feeling that I had much was significant. When I felt that I had little I tried to hold on to it, fearing to find myself in a place or time when it would be indispensable to me. When I felt that I had much I was quite prepared to get rid of it, lest I have it "left over" at some point, or have to trade it in at a great loss. I had demonstrated that money matters. How much it matters I leave to econometrics.
Dishes or Riches? Feeling flush with francs we presented ourselves on the day before we were to leave Paris at a very expensive restaurant for lunch. As soon as I looked at the menu my franc anxiety returned. I had never seen such prices. I began a hasty and not reassuring estimate of how many francs were in my wallet and my wife's pocketbook. There was nothing on the menu to indicate that credit cards were accepted. I couldn't see any money passing at other tables or even anyone signing checks. Presumably the waiter knew without being told whose lunch was to be charged to the due de Guermantes. But he would know that I wasn't the due of anything. For one thing, I had had to borrow a coat and tie from the checkroom to get admitted in the first place. I wondered how many hours of dishwashing it would take to work off 500 francs. When the check came I inquired, appearing as confident as I could, whether they took credit cards. The answer was affirmative, and I was rich again.
That left us with an unexpectedly large amount of francs. Even after some splurging I had some to turn in at the bank at the airport, where I sold at 5.77 to the dollar francs that I had bought at an average price of 4.9787. I was glad to get rid of them. Now I could stop thinking about centimes and resume thinking about trillions of dollars in the budget or the GNP.
I was traumatized by exchange rates long ago. It was in 1936, to be exact, when I had a course in international finance with the redoubtable Prof. Jacob Viner. I could never understand why the exchange rate on the British pound was $4.88, whereas the rate on the French franc was 20 to the dollar. If the pound was $4.88, why wasn't the franc $0.05? Or if the franc was 20 to the dollar, why wasn't the pound 0.205 to the dollar? I just didn't know which country was up. So I gave up thinking about the subject for a long, long time.
When I can't avoid the subject it still baffles me. For example, I do some work on the Israeli economy. Now, when Americans say that the exchange rate went up they mean that the dollar rose relative to other currencies. But when the Israelis say that the exchange rate went up they mean that other currencies rose relative to the shekel. Baffling! Maybe it's because they read from right to left.
My allergy to exchange rates really hurts when I have to meet a foreign currency hand to hand, as was seen on a recent trip to Israel and France.
From Shekels to Francs Leaving Israel to fly to Paris (see Map 7.1) I had
a handful of leftover shekels. I decided to exchange them for francs. Going from the exotic shekel to the romantic franc without passing through the humdrum dollar made me feel like a sophisticated jet-setter.
I received 279 francs, which somehow seemed enough for taxi fare from Charles de Gaulle Airport to my Paris hotel. I also got a printout saying that the rate was 0.39. Since I thought that the shekel was worth about 50 cents and the franc about 20, it seemed reasonable enough that a figure like 0.39 should appear somewhere, although I wouldn't have bet on doing the algebra right the first time.
Five hours later I am speeding along in a French taxi and the taximeter is clicking off two francs at an even more furious pace, alongside a sign saying "No checks accepted." I worry about whether my 279 francs are going to survive this race, at the same time trying to remember whether I should multiply the francs by 0.2 or by five to get them into my native currency.
To my relief, the taxi and the meter slow down as we enter the XVI Arrondissement, and the meter says only 132 when we stop in front of the hotel. "One hundred and sixty," says the driver. (All this is a blur in my mind now, and I'm not sure what language we were using. I suppose English.) "Why?" I ask. "Luggage," he explains. I am so annoyed and angry about this, as well as by his general manner, that I determine to give him no tip. I had barely reached the sidewalk, however, when I realized that I had only 19 francs left. I had
'Herbert Stein, "Foreign Travels, Foreign-Exchange Travails," The Wall Street Journal, 27 August 1990, p. A10.
given the driver 260. But he assured me that I was mistaken. He showed me that in one pocket he had a lot of money, which was his, and in the other pocket he had a little, which was what had been mine. Before we could pursue the subject he drove off.
The receptionist in the hotel was philosophical. She explained that the event was not uncommon and there was nothing I could do about it.
So there my wife and I were on a Sunday afternoon, Ascension Day, in a small hotel, sans restaurant, in a quiet part of Paris, having had no dinner and with about $2 in francs, after tipping the bellman. I asked the receptionist, who for some reason reminded me of A Tale of Two Cities, whether she could cash a traveler's check. She could, and the rate was 4.9. She saw my surprise and explained that the rate had gone down (this was three days after the invasion of Kuwait) but maybe it would go up next week. She was still philosophical. "It's only a few centimes," she said. Later in a calmer mood I figured out that 4.9 is 2 percent less than five.
All the money amounts are trivial. This story is not about amounts; it is
about confusion, mental anguish, humiliation. It is about states of mind, which is, after all, what economics is all about.
Armed with $50 worth of francs we set out to find a light supper. Fortunately, French restaurants, brasseries, and bistros all have menus posted outside, so you can review your options before committing yourself. Even with $50 my options were not great. But the second time around the Place I realized the solution to my problem was the brasserie whose menu welcomed credit cards. There I would not have to worry about running out of francs and someone else would have to figure out how much my bill was in dollars. (When I did get my credit-card bill at home my franc expenditures had been translated into dollars at a rate more favorable to me than any I encountered in Paris.)
The next morning we went to the bank to change money. There was the usual bulletin board with exchange rates in two columns—Vente and Achat. Which was I, buying or selling? I was selling dollars and buying francs. The bank was selling francs and buying dollars. I knew that whichever it was, I was going to get the smaller amount. And even the smaller amount was 5.2 with some more decimals, much more than La Tricoteuse at the hotel had paid. In fact, the rate was 5.27719 francs to the dollar. I cashed only $50 because I still had the money I had exchanged at the hotel. Also, hadn't I learned that when the oil price rose the dollar did too, because people had to pay for oil in dollars? Probably I would get a better rate the next day.
The net I received was 234.21. The commission and value-added tax had eaten up 29.61 francs. Later, I figured out the net rate had been 4.6842, almost 5 percent less than I had gotten from La Tricoteuse, whom I had unjustly maligned.
We now had almost 500 francs and started out to spend them. Our first stop was a fruit stand. Have you ever tried to calculate in your head what is the price in cents of two oranges when they cost 35.75 francs per kilo and you do not have access to scales? Or how much money you should give the cashier when you are not immediately sure whether quinze is 15 or 50? You hold out a handful of change and let her pick what she wants. She seems honest.
Having managed to get rid of quite a few francs, we undertook to get more the next morning. I proposed to La Tricoteuse that she should sell me some, but she declined. I think she had an agreement with the bank next door not to do any banking during hours when the bank was open. At the bank I discovered that, contrary to my speculation about the price of oil, the dollar had declined from 5.27719 francs to 5.22027. But we had learned about the commission, which was a constant, so by buying $200 worth we reduced (raised?) the net price to 5.072.
Now we were really flush with francs, and I had a sudden insight into the truth of monetarism. The idea is that individual behavior is significantly
governed by the possession of a certain kind of asset, called "money." Here I was with dollar currency, traveler's checks, credit cards, and checks on an account in an internationally known bank. With a call to my broker I could get a telegraphic transfer of a large amount of money from a money-market fund. Compared to my total liquid assets, the amounts of French currency I ever held were minute. But the difference between feeling that I had little French currency and feeling that I had much was significant. When I felt that I had little I tried to hold on to it, fearing to find myself in a place or time when it would be indispensable to me. When I felt that I had much I was quite prepared to get rid of it, lest I have it "left over" at some point, or have to trade it in at a great loss. I had demonstrated that money matters. How much it matters I leave to econometrics.
Dishes or Riches? Feeling flush with francs we presented ourselves on the day before we were to leave Paris at a very expensive restaurant for lunch. As soon as I looked at the menu my franc anxiety returned. I had never seen such prices. I began a hasty and not reassuring estimate of how many francs were in my wallet and my wife's pocketbook. There was nothing on the menu to indicate that credit cards were accepted. I couldn't see any money passing at other tables or even anyone signing checks. Presumably the waiter knew without being told whose lunch was to be charged to the due de Guermantes. But he would know that I wasn't the due of anything. For one thing, I had had to borrow a coat and tie from the checkroom to get admitted in the first place. I wondered how many hours of dishwashing it would take to work off 500 francs. When the check came I inquired, appearing as confident as I could, whether they took credit cards. The answer was affirmative, and I was rich again.
That left us with an unexpectedly large amount of francs. Even after some splurging I had some to turn in at the bank at the airport, where I sold at 5.77 to the dollar francs that I had bought at an average price of 4.9787. I was glad to get rid of them. Now I could stop thinking about centimes and resume thinking about trillions of dollars in the budget or the GNP.
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