Transaction Costs and Suitability of Trading Currency – Case on Selected East Asian Economies

Abstract

 Abstract—Until recently, there are literatures that studied exporters in different countries are assumed to have increased their interest in setting prices in their own currency. However, they are concern about the business practice of “pricing to market” at the same time. In this paper, few Asian countries have been selected to compare costs trading in US dollar and Home Currencies (HC) unit. The countries include Japan, Malaysia, India, Singapore and Thailand as exporting countries. China’s recent rapid growth made it a desirable trading destination, thus, it is chosen as partner country in this analysis. More developed countries like Japan and Singapore might also choose either to trade in USD or own local currencies as the differences are not so obvious compared to India. On the other hand, Malaysia and Thailand could consider trading using home currencies as it might bring more benefit than trading in USD. This study does not mean to ignore the effects of fluctuations of exchange rates. This study uses simple ratio and index to help in demonstrating the suitability of trading currency for a country. The findings can be used as a guideline for policy makers in proposing to trade using home currencies or foreign currency in order to create a win-win trading environment.