Question

* Discuss TWO economic benefits, and TWO economic harms, to the U.S. economy, of a high and rising Exchange Rate of the U.S. dollar.

Answer 1

Americans carrying U.S. dollars will see those dollars move further internationally, allowing them a greater degree of overseas purchasing power. Since consumer prices in foreign countries are not significantly affected by shifts in the US economy, when translated to the local currency, a strong dollar will buy more goods. Expatriates, or U.S. people residing and working abroad, may also see a drop in their living costs whether they either own dollars or collect dollars as wages.

Goods manufactured abroad and imported into the United States would be cheaper if the currency of the producer falls in value as opposed to the dollar. Europe's luxury vehicles, including Audi, Mercedes, BMW, Porsche and Ferrari, will all collapse in dollar values. If a European luxury car costs € 70,000 with a $1.35 per euro exchange rate it would cost $94,500. If the exchange rate falls to 1.12 dollars per euro, the same car selling for the same amount of euros will now cost $78,400. If the dollar continues to bolster, import rates will begin to decline. Other lower-cost imports would also fall down in size, leaving more discretionary money in American consumers 'pockets.

Global businesses doing a lot of business in the U.S. and its investors would benefit. Multinational companies that have a large number of U.S. revenues and hence receive income in dollars can see dollar gains turn to profits on their balance sheets. Investors of such businesses will also be compensated.

Overseas tourists will find America's rates of products and services more competitive with a stronger currency. Business travelers and foreigners who stay in the US but hold on to international bank accounts, or who are paying income in their home currency, will be affected and their living costs will rise.

Even as locally manufactured goods are cheaper at home, they become even more costly overseas. An American-made car costing $30,000 will cost € 22,222 in Europe, with an exchange rate of $1,35 per euro; however, it falls to € 26,786 as the dollar boosts to € 1,12. Some have claimed that costly exports could cost US jobs.

And both the strong dollar and the weak dollar have both positive and negative effects. Think about it: U.S. consumers are benefited by a strong dollar because it makes imported imports cheaper, which American consumers obviously love purchasing. But it affects U.S. exports, and therefore U.S. productivity and employment. It also makes the USA a less accessible destination for international travelers to travel.

Therefore, the best "dollar strategy" is one which balances the pros and cons of a strong and weak dollar, and takes into account the economies of our trading partners. The last point can be important: For example, a dollar strong against the euro would weaken the euro. EU goods should become more accessible to the Americans, enabling Americans to fly to Europe. Which could help EU nations battle recession and unemployment.