I never really realised what an effect dollar parity has on share trading. So have a few questions to check that I am understanding the full impact and implications.
If an overseas company/individual owns shares in an Australian company, am I right in saying that a falling Aussie dollar makes their shares less valuable?
For example, say an Aussie stock (eg CPU) was selling at $9.65 on the ASX on 7/8/08 when the exchange rate for the US dollar was .9109 it would have cost a US trader US$8.79 for the share.
However, now that the exchange rate is 0.6983 if they sold that share today at $8.41 they would actually get back US$5.87. Hence a 8.9% fall for Australian CPU share holders would relate to a 33.2% fall for a US holder of those shares.
Are my calculations correct?
I assume therefore that the opposite would be true for Australians holding shares in OS companies. Hence for Superfunds that have International shares, would I be right in saying that the falling aussie dollar will make them more profitable?
Do traders use currency fluctuations much?