...Decline Value of the U.S. Dollar For more than sixty years the United States dollar has been the central reserve currency for the world. A reserve currency, also referred to as an anchor currency, is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves (Carbaugh, 2011). As the world’s reserve currency, the U.S. dollar is used throughout the world as a medium of exchange and is used as the global currency for products traded within the global market. In recent years the status of the U.S. dollar has been contested by a select few around the world. Leaders are unconvinced about the future of the United States economy as their deficits are exceeding record highs. The following analysis will discuss the history of the world reserve currency, how the U.S. dollar became the controlling currency and the benefits the U.S. has experienced as a result of having the controlling currency. Presenting analysis will also discuss the cause of mounting concerns over the future of the United States as well as the effects if the dollar was to lose its status as the world’s reserve currency. Finally, alternatives for the dollar will be evaluated as well as what the United States can do to maintain the standing of the dollar. History of World Reserve Currency During the 1800’s and the first half of the 1900’s the British Pound served as the foremost world reserve currency. Due to WWII Great Britain accrued a high amount of debt...
Words: 2556 - Pages: 11
...Background The value of the Jamaican dollar as of mid-2009 climbed to J$89 to the US dollar and settled in that zone for some time before making some gains, returning to J$85 mark in 2010. Currently, the Jamaican dollar is at $121.61 and has been in a declining state since it appreciated in 2009. The primary costs of the falling dollar are higher prices for imported goods and for Jamaicans traveling abroad. On the other hand, the benefit of a weaker domestic currency makes imports more expensive, but this could act as a barrier against imports, thus improving the country's trade balance. Domestic-currency depreciation helps attract more foreign domestic investment. This is so because international companies would find it more attractive to establish businesses in Jamaica (Seaga, 2014). The primary benefit therefore, is increased price competitiveness of Jamaican products, both for exports abroad as well as in the domestic market. The country currently has an enormous trade deficit (importing more than it exports), which represents a significant drag on efforts to spur economic growth and create jobs, and has led to an accumulation of foreign debt that will have to be repaid in the future. Given this trade deficit, the benefits of greater international competitiveness prompted by the falling dollar greatly outweigh the costs. This dollar decline was due to the Government’s decision on October 23, 1983 to devalue the Jamaican dollar to J$3.15 to the US dollar. The local currency reached...
Words: 766 - Pages: 4
...Chapter 4—Exchange Rate Determination 1. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ____ by ____%. a.|depreciated; 5.80| b.|depreciated; 4.00| c.|appreciated; 5.80| d.|appreciated; 4.00| ANS: C SOLUTION:|($0.73 - $0.69)/$0.69 = 5.80%| PTS: 1 2. If a currency's spot rate market is ____, its exchange rate is likely to be ____ to a single large purchase or sale transaction. a.|liquid; highly sensitive| b.|illiquid; insensitive| c.|illiquid; highly sensitive| d.|none of the above.| ANS: C PTS: 1 3. ____ is not a factor that causes currency supply and demand schedules to change. a.|Relative inflation rates| b.|Relative interest rates| c.|Relative income levels| d.|Expectations| e.|All of the above are factors that cause currency supply and demand schedules to change.| ANS: E PTS: 1 4. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____. a.|increase; appreciate| b.|increase; depreciate| c.|decrease; depreciate| d.|decrease; appreciate| ANS: B PTS: 1 5. An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale. a.|reduce; increase| b.|increase;...
Words: 4502 - Pages: 19
...Chapter 4—Exchange Rate Determination 1. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ____ by ____%. a.|depreciated; 5.80| b.|depreciated; 4.00| c.|appreciated; 5.80| d.|appreciated; 4.00| ANS: C SOLUTION:|($0.73 - $0.69)/$0.69 = 5.80%| PTS: 1 2. If a currency's spot rate market is ____, its exchange rate is likely to be ____ to a single large purchase or sale transaction. a.|liquid; highly sensitive| b.|illiquid; insensitive| c.|illiquid; highly sensitive| d.|none of the above.| ANS: C PTS: 1 3. ____ is not a factor that causes currency supply and demand schedules to change. a.|Relative inflation rates| b.|Relative interest rates| c.|Relative income levels| d.|Expectations| e.|All of the above are factors that cause currency supply and demand schedules to change.| ANS: E PTS: 1 4. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____. a.|increase; appreciate| b.|increase; depreciate| c.|decrease; depreciate| d.|decrease; appreciate| ANS: B PTS: 1 5. An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale. a.|reduce; increase| b.|increase;...
Words: 4502 - Pages: 19
...trading in the individual currencies that subsequently made up the euro area and (2) trend of consolidation of the banking sector during that period, so there were fewer banks in the fx market trading amongst themselves. One significant change in the report is a significant increase in trading between foreign exchange dealers, primarily banks and their financial customers, most particularly, increased trading activity with hedge funds, mutual funds, pension funds and insurance companies. One continued trend is that the currency composition of foreign exchange trading has become more diversified. The most widely traded currency in traditional foreign exchange trading, again meaning spot, forward and swap transactions, is the US dollar, but the share of...
Words: 3545 - Pages: 15
...Analysis of the Recent Economic Downturn In 2007, strong growth in the third quarter lead most to believe that a recession had been avoided, however, this proved not to be the case. A decline in GDP growth is the cause of recessions. Typically, there will be a “goldilocks” economy or an irrational exuberance prior to a recession, followed by a market crash. Prior to the 2007 – 2009 recession, the housing market was going up. Everyone “knew” house values could only go up and behaved accordingly; banks lent too much money to consumers bought too much house. Once the market crashed, the stage was set for a recession. Many factors affecting the aggregate demand curve had declines. As mentioned, home equity declined, as well as the stock market. This decrease in wealth decreased consumption and consumer confidence leading to lower spending. As consumers cut back on spending, business confidence also fell with additional decreases in consumption and also investments. Additionally, foreign GDPs were also declining leading to a decrease in exports. The changes in these variables all caused a shift back in the aggregate demand curve, lowering the GDP. Attempting to counteract the recession, the Federal Reserve pumped money into the economy, increasing the nominal money supply. As the value of the dollar decreased, interest rates were kept low, allowing the exchange rate to remain favorable for exports. Additionally the government increased spending by way of stimulus packages for banks...
Words: 2106 - Pages: 9
...the effects of an increase in uncertainty on GBP/U.S. dollar exchange rates. When uncertainty increase, consumer and investors move their money to less risky places. Increase of uncertainty will depreciate USD relative to GBP. In other words if domestic consumer spend $1 to buy a chocolate from UK, now they have to spend $1.2 to buy the same chocolate from. However, British pound appreciates relative to US dollar. If UK consumer buys a chocolate from US for 2 pounds, now they can buy the same chocolate for 1.5 pounds. Therefore, exchange rate affects GDP. Dollar depreciation affects imports and exports. US products are cheaper for foreign consumers causing the domestic exports to increase. However, purchasing power of the US dollar declines, thus making foreign purchases expensive. Imports will decline. When exports increase and imports decrease, net exports will increase. I also came across some articles that there’s a possibility that a stock market crash could take place again in 2015/2016. http://www.forbes.com/sites/simonmoore/2015/02/10/five-ways-to-manage-a-market-crash/3/ http://www.newsmax.com/Finance/MKTNews/Market-Collapse-Finance-Stocks/2013/03/01/id/492699/ http://money.cnn.com/2015/01/09/investing/stocks-market-crash/ Sources: Coppola, Francis. “The long decline of the Great Britain Pound” February 24, 1014. Online March 3, 2015. < https://www.creditwritedowns.com/2014/02/long-decline-great-british-pound.html > “Exchange rate appreciation-depreciation”...
Words: 295 - Pages: 2
...Principles of Microeconomics Consumer Behavior and Utility Maximization – Lecture 9 Income & Substitution Effect: * We have earlier mentioned to explanations for the downward sloping demand curve: * Income & Substitution Effect – Purchasing Power * Law of Diminishing Marginal Utility (DMU) * The income effect is the impact that a change in the price of a product has on a consumer’s real income and consequently on the quantity demanded of that good. * The substitution effect is the impact that a change in product’s price has on its relative expensiveness and consequently on the quantity demanded. The cheaper the product is, the more attractive it becomes. * Income and substitution effect combine to increase consumer ability and willingness to buy a product as price falls Law of Diminishing Marginal Utility: * A second explanation of the downward sloping demand curve is that although consumer wants in general may be insatiable, wants for particular commodities can be satisfied. * In a specific span of time over which consumer’s tastes remain unchanged, consumers can get as much of a particular good or service as they can afford. * But the more of that product they obtain, the less they want still more of it. * This is the Law of DMU that causes the demand curve to be downward sloping. Utility: * A product has utility if it can satisfy a want. * Utility is want-satisfying power. * Important points to keep...
Words: 2295 - Pages: 10
...Subject: ECO 550 Professor Name: DR. Yasmeen Student Name: Sayed Rohullah Week 3: Check your understanding 1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the S vary jointly with disposable personal income Y and the population between ages 15 and 40,Z, and inversely with the price of the snowmobiles P. Based on the past data, the best estimate of this relationship is S= K *YZ/P Where k has been estimated (with the pst data) to equal 100. If Y=$11,000, Z= $1,200, and P=$20,000 a. What value would you predict for S? Answer: The given function is S=K*YZ/P k=100 Y=$11,000 Z=$1,200 P=$20,000 S=100(11000*1200)/20000= $66,000 Problem 5 5. A firm experienced the demand shown in the following table. a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w = 0.9 and a w = 0.3). The exponential smoothing forecasts may be begun by assuming Ŷt+1 = Yt. b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. c. Which forecast would you have used for 2010? Why? 5- year 3-Year Exponential Exponential Actual Moving Moving Smoothing Smoothing Year Demand Average Acverage (W= 0.9) 2000 800 xxxx xxxx xxxx Xxxx 2001 925 xxxx xxxx 687.5 762.5 2002 900 xxxx Xxxx 947.5 932.5 2003 1025...
Words: 1544 - Pages: 7
...no progress while the output lead to a worsening of the US economy, while the European Union's economy has created and continues to create the effect of a bomb. Slowed manufacturing due so in the United States and the decline in so born producer inflation, while increasing concerns for a slowdown in the economic recovery, the depreciation of the dollar with getirmiştir.amerik United States as they begin to worry about the growth of the economy in concern gösterilebilir.b as a result of this kind of data the euro the upward movement rising against the dollar has led to the stop. Seeing this, the evaluation noted that the US Federal Reserve released the latest growth forecast for this year has attracted a number of qualifications in the guide below. Central America describes as a positive trajectory in the branches of the Bank has made the euro-zone has caused the appreciation of the euro on positive news. Held in Greece this year, forecast to draw a positive picture of Portugal and Spain's successful bond auction and stress tests for banks were the main factors in the formation of the air. So what else can affect the euro-dollar parity and this factor may be what? There are four main factors. The first of these, the euro determines the movement against the dollar. Continuous decisive subjects, which is the euro. This is the main factor determining the second factor, the United States and European nations have applied their central banks from market interest rates. The other are...
Words: 1504 - Pages: 7
...is defined as a decline in a country’s GDP (gross domestic product) or when the economic growth in negative, two or more consecutive quarters. The state of the economy during the most recent recession was the worst since the Great Depression. In 2008-2009, the economy decreased within five quarters, including four quarters consecutively. Two quarters showed a decrease more than 5% and Q2 in 2008 dropped 8.9%. This was the lowest drop in a recession since the Great Depression. In Q3 2009, the recent recession ended, because of economic stimulus spending. The recent recession was the longest since the Depression, lasting 18 months. The recession officially started in late 2007 to mid-2009. The Economic Security Index determined the impact of the recession by developing a measurement tool based on government economic data. The tool showed that due to the decline in income, increase in medical spending or both, Americans experienced a financial loss of 25 percent or greater. Southern states showed the worst economic losses from 2008-2010. Researchers found various reasons linked to these states hardship such as, poverty rates, the amount college graduates and unemployment rates. During the last recession, the national unemployment rate was at 5.0 percent making it the lowest in 2.5 years. From December 2007- June 2009, employment decline was the greatest of any recession of recent decades. In most cases, industries producing goods experienced the largest decline in employment during...
Words: 1614 - Pages: 7
...Eco550 Week 3 Chapter 5 1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the S vary jointly with disposable personal income Y and the population between ages 15 and 40,Z, and inversely with the price of the snowmobiles P. Based on the past data, the best estimate of this relationship is S= K *YZ/P where k has been estimated (with the pst data) to equal 100. If Y=$11,000, Z= $1,200, and P=$20,000 a) what value would you predict for S? Answer: The given function is S=K*YZ/P at the given values of; k=100 Y=$11,000 Z=$1,200 P=$20,000 the value of S is: S=100(11000*1200)/20000= $66,000 so there would be a sales of $66,000 at above given values. 5. A firm experienced the demand shown in the following table. a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w = 0.9 and a w = 0.3). The exponential smoothing forecasts may be begun by assuming Ŷt+1 = Yt. b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. c. Which forecast would you have used for 2010? Why? 5- year 3-Year Exponential Exponential Actual Moving Moving Smoothing Smoothing Year Demand Average Acverage (W= 0.9 ) (W= 0.3 ) 2000 800 xxxx xxxx xxxx Xxxx 2001 925 xxxx xxxx 687.5 762.5 2002 900 xxxx Xxxx...
Words: 1905 - Pages: 8
...continued to be pushed onto the market, however demand had begun to slow down pushing housing down. Consumer confidence, a leading indicator of economic performance, was high, moved a bit lower in part due to the hurricanes, but had begun to rebound in the latter part of 2006 coinciding with the rebound in the stock market and the decline in oil prices in that same period. Further into 2006, the housing market collapse was beginning but was buffered by lower oil prices, which supported growth and led to lower energy prices giving consumers more spending power. Even with this increased spending power, consumption growth still slowed as home prices fell, consumer credit became less available, and consumer debt levels peaked. Business demand momentum also slowed with a sharp decline in residential investment outweighing strong capital spending by businesses in structures and equipment. Government spending increased due the reconstruction efforts after the hurricanes and due to the unfunded Medicare prescription drug program. The U.S. current account balance hit a record deficit of $856.7 billion as consumers were still spending and the value of the dollar...
Words: 1415 - Pages: 6
...fall in the value of the Australian dollar against the U.S. dollar benefit Billabong? As a result, Billabong’s fortunes are closely linked to the value of the Australian dollar against the U.S. dollar. When the Australian dollar falls against the U.S. dollar, Billabong’s products become less expensive in U.S. dollars, and this can drive sales forward. Australian dollar fell rapidly in value against the U.S. dollar. In June 2008, one Australian dollar was worth $0.97. By October 2008, it was worth only $0.60. The fall in the value of the Australian dollar was in part due to a fear among currency traders that as the world slipped into a recession, caused by the 2008–2009 global financial crisis, global demand for many of the raw materials produced in Australia would decline, exports would slump, and Australia’s trade balance would deteriorate. 2....
Words: 576 - Pages: 3
...1. When the Bank of Japan expanded monetary stimulus on October 31, 2014: * The Nikkei Stock Average closed at 16,414 points, surged by 4.8 percent, which is its biggest rise in over a year. * The Dow Jones Industrial Average increased 1.13 percent to 173.45 points, soared to a new all-time high. * The Stoxx Europe 600 rose 1.8 percent. * The Dollar was near a seven-year high against the Yen, which is ¥112.32 per $1. * The yield on a 10 year U.S. government bonds rose by 3 percent to come in at 2.35 percent. In contrast, a 10 year Japanese government bond yields down to 0.46 percent. * Gold price dropped 2.3 percent to a four year low of $1,162 per ounce. * Crude oil was down to $80.54 a barrel, eroded by 0.7 percent. Source: http://www.theguardian.com/business/live/2014/oct/31/bank-of-japan-expands-monetary-stimulus-eurozone-inflation-unemployment-live http://marketrealist.com/2014/11/santa-comes-early-japan-will-bojs-shock-stimulus-bet-pay/ 2. How would Japan’s new stimulus plan contribute to all of these change? Stocks go up since more people want to buy than sell securities. According to the plan, the Bank of Japan would be purchasing Japanese government bonds and stock market Exchange Traded Funds, causing demand for these securities to increase, as a result, the price of them would be higher. The prices of Japan-focused and international Exchange Traded Funds, which have significant positions in Japanese stock, was benefited by the...
Words: 1156 - Pages: 5
