...Advantages and disadvantages of strong and weak currency. One of the factors that can impact the economy of every country, is having a strong or weak currency, For the U.S. having a strong dollar has many advantages and disadvantages, Exchange rates are typically the best indicators of the value of the U.S. dollar versus other countries currency. Advantages of strong dollar: * Economy grows. * The buying power of American people increase. * Traveling outside the U.S. becomes cheaper when traveling to countries where the dollar is higher than the currency of the nation visited. * The possibilities for U.S. investors and companies to be successful and profitable on countries where their currency is weak versus the American dollar are very optimistic and risk of investment is low. * Companies on the U.S. can outsource accounting services, technical support, customer service support and other services that can cost up to 80% cheaper or 1/5th of American comparable workers. * Is the cheaper for our country to import finished products like electronics, foods, auto parts and building materials. These are only a few advantages of having a strong currency, at the same time these are indicators that can lead the country to trade deficit our exports (dollars amount) can be less than our imports. Another great example of strong dollar is the oil prices. Currently we are experiencing a drop on the oil barrel, as a consequence the price of gasoline has drop to...
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...asking myself about the reason and the aftermath for the currency change. I was told that having a strong currency is what a country would strive in the end. A strong currency means a strong nation, thus a richer country. I began to question the rightness of the fact. Does the strength of the currency really reflect the credibility of its nation? In general, according to an article on New York Times, it is said that ‘The supply of dollars to the foreign exchange market comes from Americans who want to buy goods, services or assets from abroad. The demand for dollars comes from foreigners who want to buy from the United States.’ As said, when there is a high demand, the dollar price increases and the supply of the dollar decreases. Meanwhile, when there is a low demand for dollars, the dollar price decreases and the supply increases. A currency’s purchasing power is an indicator of the relative worth of currency. For an example given there is a nation called ABC. In May 2011, a nation’s currency of $1 ABC dollar could be equivalent to $2 US dollar and at the end...
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...Exchange Introduction Recent Dollar Trend The United States dollar began to fall in world currency markets in 2006. Many economists predict that the United States dollar will decline at an even greater rate in 2007. Economists believe that the United States dollar could lose as much as 30% of its value. The debate that a recession may be around the corner is backed by international trade and Federal budget deficits that are anything but under control (Dissidentnews/Worldpress, 2007). The United States dollar began at 88.86 on the FOREX international currency index in January of 2006. 83.67 is where the United States dollar ended at the end of 2006, a drop of about 6%. In 2006, the United States dollar fell 11.5% versus the euro, 13.6% compared to the British pound, and by 7.3% versus the Swiss franc. Central bankers are expected to move away form the United States dollar with regards to their foreign reserve holdings (Dissidentnews/Worldpress, 2007). China the second largest holder of United States debt reduced its purchases of United States bonds by 1.7% in the first 10 months of 2006. Venezuelan, Indonesian, and the UAE said they will invest lees of their reserves in dollar assets. Iran’s switch to Euros may be the greatest threat to the United States dollar. The use of the euro will surely spread to other oil producing companies as well, further damaging the United States dollar’s supremacy. As far as OPEC foreign reserves go, the share of dollars as a percentage of these...
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...Week 5 DQ 1 Explain how foreign exchange rates are determined. How do changes in interest rates, inflation, productivity, and income affect exchange rates? What are the advantages and disadvantages of a weak versus a strong dollar for imports, exports, international and domestic markets? Explain how foreign exchange rates are determined? Foreign exchange rates exist because banks buy and sell foreign currencies from other countries in large quantities. Exchange rates exist in the U.S. dollar, Europe euros, Japanese yen, British pounds, Canadian dollars, Australian dollars, and much more. There are currently two main systems that are used to determine a currencies exchange rate. The floating currency sort of works like the supply demand method. This system is normally used for countries that are in a stable economy. These exchanges are considered more efficient because the market will correct the rate to reflect inflation and other economic forces automatically. The downfall of this system is that it can discourage investment. The other system is a pegged or also known as a fixed system. This is the system that is used when an exchange rate is set and artificially maintained by the government. The rate will be pegged to other countries dollar and does not fluctuate from day to day. How do changes in interest rates, inflation, productivity, and income affect exchange rates? Exchange rates affect different areas in the economy such as interest rates, inflation, productivity...
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...presented with a dilemma of expanding internationally. This company produces a single product which is rollerblades. The company a few years back was very successful and reported huge sales. This has now changed with annual reports and stock price going down. The CFO of this company or Chief financial officer has made all cuts, possible without affecting the quality of the product. The company is now also faced with decision of continuing to penetrate in the U.S. market and consider importing parts. Many companies have used this strategy and it has proven to be successful. CFO in this case was considering Thailand because of its weak economic state would allow for the purchase of rubber or plastic components at a cheap price. This is caused from the weak currency to the U.S. dollar exchange rates with Thailand. The CFO however was also looking to improve the U.S. weak company sales and start exporting to Thailand. The company knew their competitors were importing however very few exported the roller blade. This would also give them an exclusive market that presented few competitors. In the long run the company if sales in U.S. market still did not rebuild a subsidiary firm could be established and penetrated the Thailand market. First I would like to relate the case to chapter 1 in the book on “How firm engage in International Business (Madura, pg 8). By starting in Thailand there are the types of business organization that Mr. Holt will be able to venture into. They can consider partnership...
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...The strength of the dollar is different from when it comes to the global economy compared to the domestic economy. When it comes to the domestic economy, the dollar is still a dollar if the economy is strong or weak. In addition, if there is more money being printed, then the value of money depreciates. When it comes to the global economy, the strength of the dollar has more significance because the U.S. dollar may be worth less in one country and more in another. Benefits of a tariff or tax on a good are that it will raise the domestic price of the good, which will help the domestic seller make more money from the foreign buyer. A downside to placing tariffs on goods is that it makes the domestic buyer pay more and can put a limit on how much the domestic buyer can buy. Quotas have benefits and disadvantages as well. A benefit from placing a quota on a good is that it could create a surplus, but could only be for those who have the license to import the good. A disadvantage of placing a quota on a good is that it may raise the price on an item and could possibly put a restriction or restrictions on trade with other countries. Although there are benefits and losses to international trade when it comes to tariffs and quotas it still can help a countries standard of living in the trade is done properly and within the World Trade Organizations...
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...Questions 1. Exchange Rate Systems. Compare and contrast the fixed, freely floating, and managed float exchange rate systems. What are some advantages and disadvantages of a freely floating exchange rate system versus a fixed exchange rate system? ANSWER: Under a fixed exchange rate system, the governments attempted to maintain exchange rates within 1% of the initially set value (slightly widening the bands in 1971). Under a freely floating system, government intervention would be non-existent. Under a managed float system, governments will allow exchange rates move according to market forces; however, they will intervene when they believe it is necessary. A freely floating system may help correct balance-of-trade deficits since the currency will adjust according to market forces. Also, countries are more insulated from problems of foreign countries under a freely floating exchange rate system. However, a disadvantage of freely floating exchange rates is that firms have to manage their exposure to exchange rate risk. Also, floating rates still can often have a significant adverse impact on a country’s unemployment or inflation. 2. Intervention with Euros. Assume that Belgium, one of the European countries that uses the euro as its currency, would prefer that its currency depreciate against the dollar. Can it apply central bank intervention to achieve this objective? Explain. ANSWER: It can not apply intervention on its own because the European...
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...The United States must place high tariffs and use quotas to restrict trade with foreign countries. The placement of high tariffs and the use of quotas will help strengthen the weak American dollar, raise and stabilize the economy. Our economy is at one of the weakest points it has ever been in history. If the American dollar were to collapse, it would completely destroy the global economy. Our dollar is declining, as this happens it makes U.S produced goods are less expensive and become more competitive with foreign produced goods. In theory this helps U.S exports, boosting economic growth, but in the end we do pay for it with it higher oil prices during the summer months. When the dollar declines, oil producing countries seem to raise their prices, this is done since they know we depend on their oil and they know that we will pay for it. A tariff is a tax on imports and a quota is a legal limit on the amount that can be imported. The benefits from tariffs would be increased revenue that would benefit the economy. The disadvantage to having tariffs would be the price increase on goods with the tariff in place. Tariffs can be harmful to those that impose them and those that have to pay them. Quotas can beneficial by limiting certain imports in certain countries. The disadvantage to this is determining what goods to limit and to what quantity and the potential for increased smuggling of goods. . Tariffs offer more benefits than quotas. Tariffs can help control the costs of...
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...with other countries or regions. Trade also leads to higher GDP, better and more choices of products for consumers, increase in competition in domestic market leads to competitive prices which is good for consumers, competition also leads to better quality in goods and services, and reduces unemployment and poverty. Thus, this leads to growth and maturing of a countries economy as a whole and also the businesses involved (Advantages and Disadvantages of International Trade). The United States monetary system has the largest impact on global and domestic economy. Global economy includes American trade and imports with other countries; domestic only involves the economy in the United States; and fluctuation has the greatest effect relative to other currencies. The value affects company profits, budgeting and manufacturing costs. It has ramifications on capital investment, plant openings and closings. For example, some companies that have outsourced customer service and call centers to India have returned these centers to the U.S., since the weak dollar has eroded the cost benefits of operating overseas. Also, large scale imports through international trade from China have replaced domestic production and consequently cost close to a million jobs (International Trade).Tariffs are usually imposed on imported goods. Tariffs increase the cost of imports, which causes the consumer surplus to decline. When it comes to thinking of the...
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...1.1 Introduction: Rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another currency or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy in each country it also called rate of exchange or foreign exchange rate or currency exchange rate. 1.2 Objective of the Report: The primary objective of this report is to know the over functions of government in foreign exchange market. But the objective behind this study is something broader. Objectives of the study are summarized in the following manner: • To describe the exchange rate systems used by various government. • To explain how government can use direct and indirect intervention influence exchange rates. • To study existing government control over exchange rate system. • To know how government can affect economic conditions. • To have some theoretical exposures that will be helpful for our future career. 1.3 Methodology: For preparing this report, we have undergone group discussion, collected data from internet. We also studied different circulars and reference books on this topic. We hope these criteria will be enough to find out different picture of government influence on exchange rate system. 1.4 Limitations of the Study: 1. The time, 1(One) week...
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...they believe in the advantages of international trade such as an increase in choice of goods and services for consumers which will help to increase their level of satisfaction. On the other hand, opponents believe that international trade will bring about disadvantages such as increasing competition which will hurt domestic firms and also affect employment rates. International trade takes place because different countries are productive in producing different groups. Two economic concepts involved in international trade will be absolute advantage and comparative advantage. Absolute advantage refers to the ability to produce more goods than another competitor. Comparative advantage refers to the ability to produce a good at a lower opportunity cost than a competitor. Countries will only engage in international trade when they are able to benefit. Hence, countries of different comparative advantage will trade to enjoy more of certain goods. The United States must place high tariffs and use quotas to restrict trade with foreign countries. There are many advantages and disadvantages associated with this form of protectionism. In addition, the effectiveness of protectionism is also dependent on factors such as strength of the dollar and foreign currencies. When high tariffs and quotas are imposed, less foreign goods are able to enter the market because foreign firms are unwilling and unable to export goods to America due to the increase in costs. This will benefit domestic firms...
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...Trade Report International trade is one of the best things a country can do for its economy. It creates amazing opportunity for countries to specialize in what they make best after weighing out their opportunity costs, make more money, increase their production, and create relationships with other countries. There are many advantages to international trade but there can also be some disadvantages as well. When a country is making a decision on whether or not they are going to trade internationally, they need to weigh out each advantage and disadvantage with each country they are trading in. Advantages versus Disadvantages As a country is deciding on international trade they need to see what their own opportunity costs are as well as if the country they are doing business with is going to benefit from the trade as well. One thing that needs to be looked at first is the strength one country’s currency against the other. This can create an advantage as well as a disadvantage because if the country’s currency is weak compared to the others than it would better to export and vice versa. One advantage that was found during the simulation was the fact that Rodamia was able to specialize in the production of corn. The production of corn was the largest part of their agriculture. They were also able to specialize in exporting many of their industry specialties because this was also thirty percent of their GDP. With being able to specialize in these areas the country was able to maximize...
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...a solar power plant in Miami, a couple of necessities have to be established first. For example, one would need to know the initial set up cost for the energy production. The cost to set up solar power plant will cost approximately 3.5 billion dollars. So if the yearly budget only allotted ten billion dollars for set up cost, there could be the potential for three facilities to be built. Also, the monthly cost will have to be figured out and calculated. If the monthly cost was $300,000.00, and the yearly budget after the initial receipt of the 10 billion dollars for set up cost was 1 billion dollars per year, there could only be one solar power plant built. The building of three would take the plans over the allotted budget because, although there would be set up funds available, the monthly cost would fall short. Moreover, the energy output limit would have to be established and maintained. Take a look at the chart above, it would take 1,000 megawatts to power Miami as of right now, however, the way Miami is growing, there is no doubt that number will be rapidly increasing. Although the setup cost and monthly cost could be viewed as expensive, the advantages of implementing a solar power plant outweigh the cost and/or any disadvantages that may arise. For example, solar energy is FREE! Now don’t confuse the monthly cost with solar energy cost because...
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...Introduction This report will examine the world economy in general these issues. In this way, people can learn basic information about the world economy. Also global economy can be seen as the economy of global society and national economies – as economies of local societies, making the global one. It can be evaluated in various kinds of ways. It is inseparable from the geography and ecology of Earth, and is therefore something of a misnomer, since, while definitions and representations of the "world economy" vary widely, they must at a minimum exclude any consideration of resources or value based outside of the Earth. This report would talk about several definition would used during the world economy. Finding 1. Free trade Free trade is the interchange of goods and services (but not of capital or labor) unhindered by high tariffs, nontariff barriers (such as quotas), and onerous or unilateral requirements or processes (businessdictionary, 2015). The North American Free Trade Agreement is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North America. U.S. exports to Canada and Mexico support more than three million American jobs and U.S. trade with NAFTA partners has unlocked opportunity for millions of Americans by supporting Made-in-America jobs and exports(businessdictionary, 2015). As the U.S.’ two largest export markets, Canada and Mexico buy more Made-in-America goods and services than any...
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...central bank has been applying a basket currency system as a reference unit in order to judge the needs for rate modification and also as an anchor device to manage the movement of exchange rate by setting the central parity. (Girardin and Steinherr, 2008) According to Hu Xiaolian, the deputy governor at the Chinese central bank, rather than having the U.S. dollar alone, it is better for China to also peg their Renminbi to a basket of ten foreign currencies. The exports and imports, also balance of payments may be adjusted by the exchange rate regime with reference to a basket currency more effectively. It has been seen that the Renminbi exchange rate is stable at balanced level, although it might change in both ways against any single currency. (Fernando, V,...
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