Are you confused by currencies? Do you, along with most other Americans, wonder why the yen is considered "stronger" at 80 to the dollar and "weaker" at 90?
Here's an easy way to make sense of currency gyrations: Think of baseball cards.
Let's say that in 2011 I wanted to swap some of my Barry Bonds baseball cards for a Stan Musial card.
Stan is in the National Baseball Hall of Fame, but Bonds isn't, largely because of evidence that his homers were aided by steroids. So I had to pony up 10 Bonds cards for one Musial.
But early last year, baseball-card traders started looking ahead to the next hall of fame elections. Bonds was eligible for election to the hall in 2013. If he got in, his card would become more valuable.
So the value of my cards rose -- that is, the Bonds cards became "stronger." By December, I needed to cough up only eight of my cards to get one Musial card.
On Jan. 9, the National Baseball Hall of Fame vote results were announced. It was a shutout: None of the players from the steroids era was elected to the hall. It was a resounding no to Bonds, Mark McGwire and Sammy Sosa. And it doesn't look like any will be elected in coming years.
My Bonds cards dropped in value. Now I needed to give up 12 Bonds cards for a Musial.
Are you with me so far? When my cards rose in value, i.e., became stronger in the trading pit, I needed fewer of them to get the card I wanted: Stan the Man. When my cards dropped in value, becoming weaker, I needed more of them to trade for a Musial.
In this analogy, the Stan Musial baseball cards stand for U.S. dollars and the Barry Bonds cards for Japanese yen.
Note that I'm not saying a Stan Musial card should be worth eight, 10 or 12 Barry Bonds cards. There is not a correct exchange rate for baseball cards -- or for currency. The correct rate is whatever the market sets.
But a "weak" currency generally favors an auto company's exports, while a "strong" one favors consumers buying imported vehicles. And the advantages or disadvantages can be huge.
So when you hear an automaker executive declaring that the yen is too strong or too weak, remember: It's always a self-serving argument. It's like listening to a CEO whine that his company's stock price is too low. When was the last time you heard a CEO say his stock's price was too high?