The Oil Drum

255 comments on DrumBeat: March 7, 2008

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dipchip on March 7, 2008 - 11:48am

Exactly: And would that be because the dollar is under valued vs the euro?

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River on March 7, 2008 - 12:12pm

Well, the Fed could throw a curve by increasing rates .25% at their next meeting and whipsaw all the dollar shorts. We might see some on Wall St sky diving without parachutes. Rerun of 1929. :)

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NervousRex on March 7, 2008 - 8:55pm

In reality it's hideously complicated.

So the planes are priced in dollars, but built on a cost basis of Euros and dollars. The parts are made around the world (some in the US).

There are hedges being made on both sides for currency fluctuations, and contracts are quietly renegotiated or sweetened or allowed to expire. The contracts are made sometimes years before delivery, and on delivery the machines sometimes are slightly different, for example the A380 weighs 5 metric tons too much in this block, but allegedly meets other standards, so there are adjustments made for lateness and weight which might mask some currency turbulence.

All the while the original contract value to Airbus is flying all over the place, comparatively (sic).

So this is much more than your usual buy oil / sell oil in Euros or dollars. It has time, space, multiple transaction interfaces and hedges. It's weird.

But generally ET is correct (below) for simpler products and commodities.

NR