Top Ten Reasons Not to Invest In The Iraqi Dinar

he Iraqi dinar (IQD) revaluation rumor has been around for a number of years and continues to attract a substantial number of believers. Scores of people have purchased Iraqi dinars from fast-talking promoters and online dinar currency dealers based on the firm belief that they will make windfall profits – reportedly as much as 1,000 times their original “investment” – when the currency is revalued.

This belief in a dinar revaluation is based primarily on the fact that Iraq has the world’s second-largest oil reserves. Proponents of dinar revaluation also point to the surge in value after the first Gulf War of the Kuwaiti dinar, which is now one of the world’s most expensive currencies. (Check out Investopedia's primer on the Forex Market.)

The Iraqi dinar was trading in July 2014 at a rate of about 1,200 per United States dollar, so a 1,000-fold revaluation would see the exchange rate at 1.2 per U.S. dollar. So what are the odds of that revaluation actually happening? Probably about the same as winning the Powerball lottery, which is to say virtually nil. Before you plunk down your hard-earned dollars for the currency equivalent of moose pasture, here are our top 10 reasons why you should not invest in the Iraqi dinar.

1. Iraq is falling apart: In mid-2014, Iraq was facing its most severe crisis in years, as a swift offensive by Sunni Muslim militants threatened to break up the country. As of July 2014, these militants control much of northern Iraq, while Kurdish forces have seized Kirkuk and nearby oilfields; this has left the Iraqi government only in control of the capital Baghdad and the south. When the country’s very survival is at stake, currency revaluation is very unlikely to be on the agenda.
2. The economy is struggling: The Iraq economy had been on the upswing until the assault by the Islamic State of Iraq and Syria (ISIS) in 2014 threatened to set it back by years. In 2012, Iraq became the second-biggest oil producer in OPEC; in spring 2014, oil production in the nation reached a 35-year high of 3.2 million barrels per day. While most of Iraq’s oil production and export facilities are in the south, and thus quite distant from the conflict between ISIS and Iraqi forces, it also has significant resources in areas controlled by ISIS and Kurdish forces, which may be impossible to develop. With the economy already struggling, the last thing it needs is the challenge posed by a massive revaluation.
3. Iraqi dinars do not trade on global forex markets: The value of the dinar is currently set through an auction process by the Central Bank of Iraq. As the dinar does not trade on global forex markets, its value is set by government edict rather than by supply and demand as it is for freely traded currencies. This also means that so-called dinar dealers can charge any rate they desire to unsuspecting investors.
4. Iraqi dinars can be redeemed only in Iraq: Since Iraqi dinars do not trade on global forex markets, they cannot be redeemed anywhere except in Iraq.
5. Several U.S. states have warned about Iraqi dinar scams: A number of U.S. states have been warning their residents for a few years now about scams involving the Iraqi dinar.
6. Dinar currency brokers may not be legitimate: The Washington State Department of Financial Institutions (DFI), in a warning about potential dinar scams, notes that a number of online dealers who offer Iraqi dinars register with the U.S. Treasury as a Money Services Business (MSB) to make their scam seem legitimate. However, the MSB registration only requires a form to be filled out and does not reflect any currency trading experience or any special qualifications on the part of the dealer. It also warns that most of these websites are operating illegally in Washington State, without a currency exchange or money transmission license issued by the DFI.
7. Great deal of currency already in circulation: At a rate of about 1200 Iraqi dinars to one U.S. dollar, it is apparent that there is a great deal of Iraqi currency already in circulation. While it is possible that the Central Bank of Iraq may one day lop off three zeros to create a new currency – as has been done over the decades by a number of nations – there is a world of difference between such a redenomination (which does not change the fundamental value of a currency) and  a revaluation (which does).
8. Inflation differentials: Iraq’s inflation rate has decreased from an annual rate of 4% in early 2014 to just above 2% by mid-year. This may not seem like an unduly high rate, but is higher than the inflation rate in most advanced economies that were more concerned with the prospect of deflation than inflation in the period before 2014. The Iraqi economy could also face higher inflation if the country is wracked by civil war. An adverse inflation differential vis-à-vis the U.S. dollar is scarcely a recipe for currency revaluation.
9. Devaluation more likely than revaluation: As a result of some of the above factors, it is likely that devaluation rather than revaluation may be the most likely outcome for the Iraqi dinar in the years ahead.
10. If it’s such a great idea, why the high-pressure sales tactics? The Oklahoma Securities Commission warns that high-pressure sales tactics are being used to flog Iraqi dinars, including claims that buying dinars is a time-sensitive investment that requires immediate action. Such boiler-room tactics seldom if ever work out well for the investor.

The Bottom Line

There are simply too many warning signs to warrant investing in this currency. When it comes to the Iraqi dinar, caveat emptor or buyer beware should be the watchword.

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source;http://www.investopedia.com/articles/forex/090314/top-ten-reasons-not-invest-iraqi-dinar.asp

Understanding The Spread in Retail Currency Exchange Rates

In the frenzied world of currency trading, where daily trading volumes exceed $5 trillion, tight trading spreads are the norm for deals between banks in the interbank market, with only a few “pips” separating the bid and ask prices for a currency. Exchange rates quoted by banks to their large corporate, institutional and government clients are also very competitive, with narrow spreads. But it is an entirely different story as far as retail clients are concerned. The spread between the bid and ask price for a currency in the retail market is usually quite large, and may also vary significantly from one forex dealer to the next. Since this difference in rates can have quite an impact on your wallet, it is always in your interest to shop around for the best exchange rate. But first, let’s delve into the world of forex to get a basic understanding of how exchange rates are calculated and how you can interpret them.

The bid-ask spread

The bid-ask spread is simply the difference between the price at which a dealer will buy a currency and the price at which the dealer will sell a currency. In other words, the bid price is the price that the dealer is willing to pay or “bid” for a currency, while the “ask” price is the price that the dealer wants for a currency.

Consider an American traveler – let’s call her Ellen – who is visiting Europe and is confronted by the following price for euros at an airport exchange kiosk: EUR 1 = USD 1.30 / USD 1.40. The higher price, i.e. USD 1.40 is the price that the dealer is asking per euro. Since Ellen wants to buy EUR 5,000, she would have to pay the dealer $7,000.

What if the next traveler in line – Clark – has just finished his European vacation and before boarding his flight back to the U.S., wants to sell the euros he has left over. By sheer coincidence, Clark has EUR 5,000 to sell. He would sell the euros to the kiosk dealer at the bid price of USD 1.30, and would receive $6,500 for his euros.

The difference of $500 (i.e. $7,000 – $6,500) arising from these two transactions represents the kiosk dealer’s profit, and arises from the bid-ask spread.

Direct and indirect currency quotes

We now come to the topic of direct and indirect currency quotations. A direct currency quote, also known as a “price quotation,” is one that expresses the price of a unit of foreign currency in terms of the domestic currency. An indirect currency quote, also known as a “volume quotation,” is the reciprocal of a direct quote, and expresses the amount of foreign currency per unit of domestic currency.

Since the US dollar is the dominant currency in forex markets, most currencies are quoted in direct quote form, as for example USD/JPY and USD/CAD, which refers to the amount of Japanese yen and Canadian dollars per one US dollar respectively. (Note that the currency to the left of the slash is called the base currency, and the currency to the right of the slash is called the counter currency or quoted currency). Commonwealth currencies such as the British pound and Australian dollar – as well as the euro – are generally quoted in indirect form, as for example GBP/USD and EUR/USD, which refers to the amount of US dollars per one British pound and euro respectively.

A couple of examples may clarify the above points. Consider the Canadian dollar, which is quoted in the forex market at 1.0750 (let’s ignore the bid-ask spread for now). This quotation would take the form USD 1 = CAD 1.0750. In Canada, this represents a direct quotation, since it expresses the amount of domestic currency (CAD) per unit of the foreign currency (USD). The indirect form would be the reciprocal of the direct quote, or CAD 1 = USD 0.9302 or 93.02 US cents.

Next, consider the British pound as an example of an indirect quote. GBP 1 = USD 1.7000 represents an indirect quote in Great Britain, since it expresses the amount of foreign currency (USD) per unit of domestic currency (GBP). The direct form of this quote would be USD 1 = GBP 0.5882 or 58.82 pence.

Currency rates and cross currencies

An understanding of how currencies are quoted is crucial when dealing with cross-currency rates, which refers to the price of one currency in terms of a currency other than the US dollar, a situation often encountered by travelers.

Let’s say you are a Canadian resident who is traveling to Europe and therefore need some euros. The spot exchange rates in the forex market are approximately USD 1 = CAD 1.0750, and EUR 1 = USD 1.3400. Thus, it follows that the approximate EUR/CAD spot rate would be EUR 1 = CAD 1.4405 (i.e. 1.3400 x 1.0750). So a currency dealer in Canada might quote a rate of EUR 1 = CAD 1.4000 / 1.4800, which means that you would pay 1.48 Canadian dollars to buy one euro, and would receive 1.40 Canadian dollars if you were to sell one euro.

The calculation would be a little different if both currencies were quoted in direct form. Continuing with the above example, let’s assume the approximate spot rate for the Japanese yen is USD 1 = JPY 102, and you wish to calculate the price of yen in Canadian dollars.

Since USD 1 = CAD 1.0750 and USD 1 = JPY 102, it follows that CAD 1.0750 = JPY 102, or CAD 1 = JPY 94.88 (i.e. 102 / 1.0750).

Points to remember
source;http://www.investopedia.com/articles/forex/090914/understanding-spread-retail-currency-exchange-rates.asp

What Is Bitcoin's Intrinsic Value?

 offers an efficient means of transferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank controlled fiat money.  There has been a lot of talk about how to price bitcoin and we set out here to explore what bitcoin's price might look like in the event it achieves some level of widespread adoption.

In this article, we seek to lay a framework for calculating a medium to long term value for bitcoin, and to empower the reader to make their own projections on the value of bitcoin. (Haven't filed your taxes yet because you don't know how to declare your virtual currency? Check out Investopedia's definitive Bitcoin IRS Tax Guide.)

Assumptions

As part of our framework, we make several key assumptions.

Our first assumption is that bitcoin will derive its value both from its use as a medium of exchange and as a store of value.  As a footnote to this assumption, it should be stated that bitcoin's utility as a store of value is dependent on its utility as a medium of exchange.  We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value.    

Our second assumption is that the supply of bitcoin will approach 21 million as specified in the current protocol.  To give some context, the current supply of bitcoin is around 13.25 million, the rate at which bitcoin is released decreases by half roughly every four years, and the supply should get past 19 million in the year 2022.  The key part of this assumption is that the protocol will not be changed.  Note that changing the protocol would require the concurrence of a majority of the computing power engaged in bitcoin mining.

Our third assumption is that as bitcoin gains legitimacy, larger scale investors, and more adoption, its volatility will decrease to the point that volatility is not a concern that would discourage adoption.

Our fourth assumption is that the current value of bitcoin is largely driven by speculative interest.  Bitcoin has exhibited characteristics of a bubble with drastic price run-ups and acraze of media attention in 2013 and 2014.  But speculative interest in bitcoin, we assume, will decline as it achieves adoption.

And our fifth assumption is that the use of bitcoin will never involve fractional reserve banking and that all means of storing bitcoin will be fully backed by bitcoin.

Methodology

We will look at bitcoin as currency and bitcoin as a store of value.  In order to place a value on bitcoin we need to project what market penetration it will achieve in each sphere.  This article will not make a case for what the market penetration will be, but for the sake of the evaluation, we'll pick a rather arbitrary value of 15%, both for bitcoin as a currency and bitcoin as a store of value.  You are encouraged to form your own opinion for this projection and adjust the valuation accordingly.

The simplest way to approach the model would be to look at the current worldwide value of all mediums of exchange and of all stores of value comparable to bitcoin, and calculate the value of bitcoin's projected percentage.  The predominant medium of exchange isgovernment backed money, and for our model we will focus solely on them.  The money supply is often thought of as broken into different buckets, M0, M1, M2, and M3.  M0 refers to currency in circulation.  M1 is M0 plus demand deposits like checking accounts.  M2 is M1 plus savings accounts and small time deposits (known as certificates of deposit in the US).  M3 is M2 plus large time deposits and money market funds.  Since M0 and M1 are readily accessible for use in commerce, we will consider these two buckets as medium of exchange, whereas M2 and M3 will be considered as money being used as a store of value.

Citing the DollarDaze blog, we see that M1 (which includes M0) in 2010 was worth about 25 trillion US dollars, which will serve as our current world wide value of mediums of exchange.

From the same DollarDaze blog, we see that M3 (which includes all the other buckets) minus M1 is worth about 45 trillion US dollars.  We will include this as a store of value that is comparable to bitcoin.  To this, we will also add an estimate for the worldwide value of gold held as a store of value.  While some may use jewelry as a store of value, for our model we will only consider gold bullion.  The US Geological Survey estimated that at the end of 1999, there were about 122,000 metric tons of available above-ground gold.  Of this, 48%, or 58,560 metric tons, was in the form of private and official bullion stocks.  At an estimated current price of $1200 per troy ounce, that amount of gold is today worth upwards of 2.1 trillion US dollars.  Since there has recently been a deficit in the supply of silver and governments have been selling significant amounts of their silver bullion, we reason that most silver is being used in industry and not as a store of value, and will not include silver in our model.  Neither will we treat other precious metals or gemstones.  In aggregate, our estimate for the global value of stores of value comparable to bitcoin, including savings accounts, small and large time deposits, money market funds, and gold bullion, come to 47.1 trillion US dollars.

Our total estimate for global value of mediums of exchange and stores of value thus comes to 72.1 trillion US dollars.  If bitcoin were to achieve 15% of this valuation, its market capitalization in today's money would be 10.8 trillion US dollars.  With 21 million bitcoin in circulation, that would put the price of 1 bitcoin at $514,000.  That would be over 1,000 times the current price.

This is a rather simple long term model.  And perhaps the biggest question it hinges on is how much adoption will bitcoin achieve?  Coming up with a value for the current price of bitcoin would involve pricing in the risk of low adoption or failure of bitcoin as a currency, which could include being displaced by one or more other digital currencies.  Models often consider the velocity of money, frequently arguing that since bitcoin can support transfers that take less than an hour, the velocity of money in the future bitcoin ecosystem will be higher than the current average velocity of money.  Another view on this though would be that velocity of money is not restricted by today's payment rails in any significant way and that its main determinant is the need or willingness of people to transact.  Therefore, the projected velocity of money could be treated as roughly equal to its current value.

Another angle at modeling the price of bitcoin, and perhaps a useful one for the near to medium term, would be to look at specific industries or markets one thinks it could impact or disrupt and think about how much of that market could end up using bitcoin.  The World Bitcoin Network provides a nifty tool for doing just that.

The Bottom Line

As mathematician George Box said, "All models are wrong, some are useful."  We have set out to construct a framework for pricing bitcoin but it is important to understand the variables.  From our thinking, it seems possible that bitcoin could eventually increase in price by orders of magnitude, but it all depends on bitcoin's level of adoption.  The most important question is "Will people use bitcoin?"
source;http://www.investopedia.com/articles/investing/091814/what-bitcoins-intrinsic-value.asp