¶ … 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…
