We use supply and demand on a daily basis. Here is an example. If you own a pair of Nike Jordan or know of someone who buys them on a normal basis, what is the significance?
The significance is the Nike Company, which is an American corporation, spending millions to have their products made overseas in China.
Well, let's look at why.
- Cost Advantages and Disadvantges
-Imports and Exports
- Supply and Demand
Let's dig in!
A huge cost advantage for Nike having its products made overseas is price. Let's break down the cost:
It could roughly cost $25.oo USD to have the shoe made
$1.50 per pair to have in imported to the United States
Taxes are around $5.00
Let's talk about a disadvantage. If Nike is an American corporation but get's its products made overseas and imported from overseas, they are providing jobs, money, and doing business with a foreign country and not their own. Let that sink in for a bit. However, could you imagine how much more it could cost to have that same shoe made on American soil? Do we really think Jordans could sell for as high as they do if the shoe was produced in the same country as the company? Maybe not.
Imports and Exports
Let's talk about a disadvantage. If Nike is an American corporation but get's its products made overseas and imported from overseas, they are providing jobs, money, and doing business with a foreign country and not their own. Let that sink in for a bit. However, could you imagine how much more it could cost to have that same shoe made on American soil? Do we really think Jordans could sell for as high as they do if the shoe was produced in the same country as the company? Mabe not.
Supply And Demand
Now, let's look at supply and demand a bit and how it relates to Forex. Jordans are a very popular shoe that is popularly bought every day. I mean heck, it is a billion-dollar company. That alone tells us there is a high demand for the shoe no matter the price. In my opinion, I feel like they produce the same show and call it a different name but that is just me!
Anywho, think of how many Americans spend $150+ on a $31.50 shoe. Now let's talk about two ways to make your money back from this purchase.
The first way is obviously to purchase the stock. As of now, Nike, ticker symbol NKE, is around $94.00. Imagine purchasing a few shares each year instead of spending money on the actual show or every time you purchase the shoe, purchase a share of NKE as well. I'm pretty sure right now it's cheaper to purchase a share of NKE than the actual shoe you are looking at.
A second way is to invest in the foreign exchange market. Think of it this way, why is Nike exchanging their currency for a product? Well, simple, it's a cheaper exchange. Now relate that to currency. If you found out that your currency was worth more than another country's currency, why not exchange it and make the difference for a profitable gain?
Think about it, if you are spending your money on china made products, isn't it possible that information shows on a price chart? It sure does. A prime example is USDJPY:
If you could read this data and use this information to make money would you? If I told you it's possible would you believe me? If I told you that Nike has a department that monitors interest rates and the best time to exchange their currency for products to be made would you believe me? Well, it's true
Think of how many other companies are doing the same and how many people are buying that product. This information is recorded and measured then released in what is called fundamental analysis. You can use this data to invest in the foreign exchange market.
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