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¶ … weak dollar encourages exports, while a strong dollar encourages foreign imports into the United States. The explanation in this case is rather simple. Imports need to be paid in the currency of the country wherefrom they have originated. This means that the American importer needs to purchase the foreign currency in order to pay the import. If the dollar is strong, then the fixed amount of foreign currency that needs to be purchased for the imports can be purchased with less American dollars, in the sense that less American currency needs to be exchanged to reach the fixed import sum.
A practical case refers to an import from the European Union. A strong dollar favors a cheaper import. On the other hand, a weak dollar favors exports from the U.S., because the American producers need to pay comparatively less than their counterparts and their products are internationally sold against stronger currencies.
On the other hand, a strong or weak dollar has a direct impact on interest rates and inflations, just as these have a direct impact on the currency. As such, a strong dollar that favors cheap imports will most likely trigger inflationary waves, because the demand for cheaper products is likely to grow. An inflationary period will argue for an intervention...
A strong dollar is thus associated with the risk of an inflationary period and an intervention from the Federal Reserve rising interest rates.
It is worthy to note that a macroeconomic instability that involves growing inflation will trigger an increase in interest rates. Due to the difference in interest rates, the foreign investors will likely pick the U.S. dollar as the currency offering the best return in a given case.
2. At first glance, we may decide that the Funeral Home, due to its specificity, is not likely to engage in any international trade. On the other hand, it is important to classify the company's activity in two separate domains: demand and supply.
In terms of demand, we need to admit that this needs to come locally, from at most several hundred kilometers. Certainly, we may consider using cooling vans to transport the bodies, but we also need to appreciate whether or not the activity remains rentable in this case, due to increased costs.
On the other hand, the supply side offers numerous opportunities for international trade. The global world we live in today and the…
Chester has been using for several years a "Cost Leader with product life cycle focus" strategy, which implies a focus on the product life cycle diagram, with the introduction of products in the high tech area of consumers and their continuance in the low tech area, until they become obsolete and have to be drawn out of the market. The strategy that Chester has been using implies, first of all, a
Exchange Rates and Export Opportunities This paper compares exchange rates between Australia, Great Britain, and Japan from last February 28th, 2003 and August 28th, 2002. Analysis of where a company could focus its export business based on past current and 180 days forward exchange rate trends and other factors will then be examined. Finally a memorandum to convince management that establishing an export business to one of the countries below
It has been an expected fact that the balance of payments is self adjusting under fixed exchange rates, at least to the point when monetary authorities interfere with it by sterilizing the variations in the money supply that determines the adjustment mechanism. Irrespective of the omission of a global unit of account, base for neutral nations and means of settlement, the important disadvantage and the significant threat to prosperity
Theoretically speaking, there is only one factor affecting the exchange rate of a country adopting a floating exchange rate regime: the supply and demand of the respective currency on the international market. In this sense, if demand exceeds supply, then the value of the currency will go up and the respective currency will appreciate. On the other hand, if supply exceeds demand, the currency will depreciate and the price of
International Business - China Why is the value of the yuan relative to the dollar so important? The Chinese government has the power to dictate the value of the yuan vs. The U.S. dollar. The fact is that a strong U.S. dollar makes it more difficult for American companies to export competitively and when the dollar is weak that can (and does often) reflect that imports are reduced and U.S. exports have
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