Economics_Ch16

# How many dollars will you get if you sell all those

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Unformatted text preview: with you has to buy \$10 million worth of euros at an exchange rate of 97 cents = 1 euro. For \$10 million, he gets 10,309,278 euros. He then turns these euros over to you and gets 83 cents for every euro, which gives him \$8,556,701. Obviously this person has taken a loss; he spent \$10 million to get \$8,556,701 in return—a loss of \$1,443,299. What about you? You now have 10,309,278 euros for which you paid \$8,556,701. How many dollars will you get if you sell all those euros? Well, since you get 97 cents for every euro, you will get approximately \$10 million. Are you better off or worse off now? You are better off by \$1,443,229. 16 (428-459) EMC Chap 16 5/8/06 5:06 PM Page 453 Want to Make \$1.3 Quadrillion? ?????????????????? t the close of the twentieth century, the editors of the financial magazine The Economist identified the highest returning investments for each year, beginning in 1900 and ending in 1999. For example, the highest-returning investment in 1974 was gold, in 1902 it was U.S. Treasury bills, and in 1979 it was silver. The editors then asked how much income a person would have earned at the end of 1999 if she had invested \$1 in the highestreturning investment in 1900, and then taken the returns from that investment and invested it in the highest-returning investment in 1901, and so on for each year during the century. After taxes and dealer costs, she would have earned \$1.3 quadrillion. (Quadrillion comes after trillion. In 2004, Bill Gates, the richest person in the world, had \$47 billion, so \$1.3 quadrillion is 27,659 times what Bill Gates has.) What is the lesson? With perfect foresight (or with a crystal ball that always correctly tells you what the highest-returning investment of the year will be), one would be rich beyond his or her imagination. After the editors ran their experiment, they changed it. They went back and asked themselves what A one would have earned over the twentieth century if, instead of investing in the highest-returning inve...
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