European Stars and Stripes (Newspaper) - October 06, 1985, Darmstadt, Hesse                                Sunday october 6, 1985 the stars and stripes Page 19 1 " my Mil 11 Iii 11 ism ii 11 Ali  exp a Muff looking at the world s Dollar sense by Nicholas d. Kristof new York not the Dollar has remained Strong for several years despite widespread sentiment that it is overvalued and repeated predictions that it would soon Tumble. Efforts by some govern ments particularly West Germany a to bring it Down in recent years by Selling huge amounts of the currency have had Only limited effect. So the announcement that the United slates had met with Japan France Brit Ain and West Germany and developed a plan to reduce the Dollar was met with some scepticism about How successful the plan would be. What follows arc some questions and answers about the techniques that Are available for deflating the Dollar and How effective these tools arc believed to be. Q. Is trying to manipulate the Dollar a futile exercise a. Not necessarily. Most economists think there Are Steps that could significantly affect its course. Q. What kinds of Steps can govern ments take a. The quickest measure is to sell Dol Lars on the currency markets a practice known As intervention. Dumping big amounts of any product on a Market usually depresses its Price and the Dollar is no exception. Even the threat of such dumping can have a depressing effect. Q. What other Steps Are there a. On a much longer term basis coun tries can try to change their economics and their Trade practices. These along with Market psychology arc the Funda mental factors that determine the relative values of currencies. Q. Does intervention work a. Traders often scoff at intervention until they get a Call from the Federal Reserve or another Central Bank that wants to sell $100 million. Heavy intervention almost always causes an immedi ate drop in the Exchange rate partly be cause traders often scramble to unload their own dollars at the first sign of such a move. They do not want to be left with dollars if the Exchange rate drops. Q. So Why ire some people sceptical abort intervention a. Although sudden massive intervention can cause a run on a currency every one knows the amounts countries spend to intervene is going to be Small compared to the total amounts being traded. During a recent trading week for  Cen trial Banks appear to have sold an average of a billion or less a Day. That compares to perhaps $150 billion in foreign currency trading that takes place around the world on an average Day. So intervention depends More on psychology than on directly changing the Supply ind demand of dollars. Q. Does hat mean that intervention cannot change the economic fundamentals a. That is exactly what sceptics say. They acknowledge that intervention can cause a Sharp drop in the Dollar on any Given Day but they say that the Market can simply bid the Dollar up the next week if traders think that is where the Dollar belongs. They also note that Central Banks cannot perpetually intervene heavily in currency markets for they would run out of reserves. Britain for  has Only about $10 billion in foreign cur Rency holdings which the Market could digest in a Day or two. Q. What about past cases of intervention have they worked a. Almost exactly a year ago some Central Banks intervened very heavily and forced the Dollar Down sharply. But it gradually Rose again and after a few months was higher than Ever. When the Dollar reached its All time Peak in late february intervention forced it into a Retreat from which it has still not recovered. But other factors were also involved including anaemic growth in the United states and concerns among foreigners about the stability of the american Bank ing system which made american invest ment slightly less desirable than it had been Ana curbed the appetite for dollars. In Short the evidence is ambiguous about the effectiveness of intervention after the first few Days. Q. What about measures to change the economies in the United slates and abroad what kind of changes in the american Economy might depress the Dol Lar a. The United states could try to re Duce its Federal budget deficit and inter est rates both important reasons for he Dollar s strength. Q. Why is cutting the . Budget Defi Cit supposed to loner the Dollar a. Because the Federal government is spending about $200 billion More a year than it takes in it needs to borrow the difference. The extra demand for Money raises interest and the higher interest rates attract foreign investors. They con Vert their currencies into dollars to take advantage of those rates and thereby drive up the value of the Dollar. With lower interest rates there would be less incentive for foreign capital to come to the United slates and the Exchange Rale probably would drop. Q. Is there any Chance the United states could Tower interest rates without reducing the budget deficit a. If the Federal Reserve Board expanded i he Money Supply interest rates would drop. But the Money Supply Al ready is expanding very quickly and some economists worry thai further expansion could revive inflation. Q. Why would it Hurt the Dollar if foreign countries stimulated their economies a. Suppose Britain s Economy was booming with corporations re polling fal profile. Investors All Over the world would want of invest in British companies not in american stocks where inc returns were lower. So they would sell dollars and buy pounds. The Dollar would fall and the Pound would Rise. Q. Will Europe and Japan stimulate their economics a. Countries like Belgium and West Germany Are already planning tax cuts but it remains to be seen How much of i stimulus thai will provide. Japan has just spent inc last few years reducing its Bud get deficit and it is Noi eager to Foster anole or round of deficit spending. So Iacre Are political problems As Well As economic difficulties in Szorc for coun tries thai try to simulate i hair economics dramatically. Q. Could european and japanese governments prod their economies by loosen ing their monetary policies a. They probably could but that Stock pulse United Prest  copyright itts Friday october 4 nose compose to most act tits by volume Slock div vol close earns be old Beatrce 5.579,300 39 4 � 2 25 17 0 46 of Oil 3.944,100 in 1.49 120 10 could 2.609,000 37 1.78 310 in Burgh 1,701,300 55. 5 48 100 47 Revlon 1,500,400 53 311 170 34 pm Lapel 1,219,200 12 323 40 79 pubs vol 1.205.700 20 242 60 93 coastal s 1.149.000 29"j 286100 14 Avon prod 1,00,100 24 -. 2.05120 81 Rorberg 1.036,100 4vi 208 730 24 nose comport Urot riot Chang Stock Burgh Rorberg Cap com isl feb Gould lbs Blair in Corgi Xerox Spern close Cage erns be old ssi 7u 5.48 10.0 47 44" 3 � 2.08 230 24 187 3 /4 1046 1mo 01 27h 3 3 42 8.0 2 5 37 i. 1.78 310 18 119 2 707 170 75 22 2 5 43?� i l 2 34 190 47 1 354 130 64 49 i a 569 90 39 amt compose to Mott Active by volume Stock Oil vol close earns be old would lower interest rates and that in turn would make their currencies less attractive. Thus the Dollar could Rise not fall by that approach q. Is there anything Japan could do to raise the yen and reduce its enormous Trade deficits not just with the United states but with Kuro Peun countries As Well a. Japanese officials arc  id Erin clamping some kind of restrictions on capital leaving the country i he result would be that fewer japanese investors would sell their yen. With the Supply of yen shrinking its value Wokim n e against the Dollar. But capital restrictions would go against the tide of Liberali action of financial markets around the world and specifically a round of  announced in May i k4. At the urging of the United slates. Q. What will happen to the Dollar if governments do nothing a. Virtually All economists agree that the Dollar is out of equilibrium and eventually will fall but the key question is when. Before the eventual tall it could even Rise significantly. However it will take some tune for the effects to work through to the Bottom line. Since the Dollar peaked in Early March in had already fallen a around 15 percent against major Cunt ocies like the West Cirman Mark and still More against Sterling even before the latest developments. Am inn 324.300 3. 1 0?7 u 0 Bat 2bb.100 3 0�6 10 36 Wei turn dig 306,900 7 Sierra so 167.400 1c 0 a ? to Champ he 159,700 7 of Nakar 154.000 17 1 $3 b 0 1 6 wangle 147, is. Oim4so 10 co bin 141.100 13 09 Elsinore 137.000 30 11 30 0 Pope Evani 134,400 4 amex composite a a gust it chants Stock close chop  p e old Martin pros 80 t 3. S 13v so 0 Wai pos 106. ?. 790 130 09 Sandate 781. 4 i 267 110 28 Alcoa f.i3.75 34 � i1 / 109 matrix s 17 i 1 i 090 in 0 Hasbro s 79 n a 3 of 100 05 Hasbro o b 3sh 1. 57 Glen dust 78 1 7 44 ii 0 3 6 Bolar pm i 14 is. 0 70 200 Pec Israel la l 1 i is 100 be Price to earnings ratio old  vied of deficit St yield m Hock earnings latest 12 Moultis unaudited investor s guide 4 by William a. Doyle q. A husband buys Stock and later transfers it to his wife. Subsequently the wife predeceased the husband Waco inherits the Stock Back from his wife. Is the husband s Cost basis on the Stock the Price he originally paid for it or the Price set at the time of the wife s death a. It s the Market Price of the Stock on the Date of the wife s death assuming that was the value placed on the Stock when the wife s estate was settled. The Only exception would be if an alternative valuation Dale was used to Settle the wife s estate. Thai s the heir s basis on inherited Stock or other Capi Tal assets whether the heir is the spouse or anyone else. It s important to know your basis. If you sell the differ ence Between your basis and the proceeds from the sate is the capital gain or loss you report on your income tax return. In this exampl., things would have been different if the wife had sold the Stock before she passed away because she received the Slock As a gift. When gift Stock is sold at a Profil the basis for inc recipient who Sells in is the donor s basis. In this Case that would be the Price the husband paid. % but when gift Stock is sold Al a loss the recipients basis is i Lucr the donor s basis or the Market value on the Dale of inc gift whichever is higher. The same basis rules apply for All capital assets received As gifts. Q. My wife died our years ago leaving in Trust 100 shares of Stock. The quoted Price of the Slock on die Date of her demise was 34tt and that value was used to Settle her estate. After that the Slock went up in Price and then spill three for one. What is the heirs basis on the original 100 shares and on the 200 shares received after the split a. The heirs basis was established Al the Lime of your wife s death. At $34.62 a share the basis for inc 100 shares was s3.462.so. The basis for inc 300 shares resulting from the split remains at 13,462.50. The three for one split simply Cut each of the original shares Inlo three shares. It did t change the total basis. It did. However change the basis per share culling it into three equal parts just As the shares were divided. Bach arithmetic shows that on those 300 shares the per share basis is $11.54. Q. As i understand it we can make lax free gifts to our children As follows 110,000 from me 110,000 from my wife $10,000 from both of us for a total of $30,000. Are the gifts required to be in Cash a. The gifts Don t have to be in Cash. They can be in anything of value. However your understanding and your numbers arc a Bil off. You can give up to $10.000 a c in in  of As Many people children or otherwise is our generosity allows without filing a Federal gift in return. Don t make the mistake of confusing Federal gift lax with fed eral income lax. They arc two different things. You can give away during your lifetime up to $400,000. There will be no Federal estate lax.  num Ber has been going up each year and is scheduled to Rise to $500,000 in 1986 and $600,000 in 19x7 and in Craf Ler. Besides Hal a husband can give or leave to a wife or a wife to a husband unlimited amounts. Since Jan. I 1982, there has been no Federal tax bile on intr spousal transfers by gift or inheritance. Q. I am a retired Farmer. My farm machinery is All 10 years or More old and has been fully depreciated on my previous income lax returns. When i sell the machinery will it qualify As a Long term capital gain a. Sure. By taking depreciation of the total Cost of inc machinery you have reduced ils basis Loero. When you sell it All the Money you receive will be a Long Lerm capital gain. 40 percent of which is taxable. King feature column Doyle welcomes written questions bul he can provide answers Only through the column. You can write to him in care of the Start and stripes Apo 09311, . Forces