Question

compre swiss franc and Us dollar currencies in the last year. include facts and inflation

Answer 1

SOLUTION

SWISS , FRANC AND THE U.S DOLLAR OVER LAST YEAR

Over the past 15 years, the Swiss Franc has increased the value substantially against both U.S dollar and the Euro. In recent years, factors such as European debt crisis and accommodative monetary policy from the US Federal reserve has boosted the Franc. Currencies traded in pairs, so they are strong or weak in relation to other currencies. The European debt crisis caused investors to seek safe haven in the Swiss franc and loose monetary policy diminished the appeal of the U.S dollar. The dramatic surge in the Swiss franc was due primarly to one key event early in the year. The Swiss national bank (SNB) unexpectedly removed the peg of 1.20 franc per Euro.In the initial reaction to the news, the Swiss Franc ralliied a massive 30% versus the Euro and 25% against the U.S dollar. The move caused a major upheaval in the markets and even forced some foriegn exchange brokers out of business.

The SNB peg was initially set in 2011 after the Eurozone crisis caused investors to flock to the Swibss Franc in search of a safe haven. The Franc is widely used as a financial refuge due to the stability of the Swiss government and the financial system. The buying interest at the time caused the franc to soar and in turn hurt the Swiss economy by making exports less competitive.However, several important factors had changed in the economic landscape that likely contributed to the change in SNB policy. Economic strength in the U.S and the expectations that the federal reserve may be ready to hike interest rates caused the Euro and the Swiss Franc to weaken the sustainability of the US dollar. The expectations of the Quandititive easing ( QE ) from the European Central Bank ( ECB), which did in fact come to pass, also played an important role.