Question

Suppose that, at the beginning of the semester $1.1825 would purchase 1.00 Euro. Suppose, also, that it now takes $1.190 to purchase 1.00 Euro. Also, suppose that at the beginning of the semester, $1.3439 purchased £1.00 while it now takes $1.3154 to purchase £1.00. At the same time, at the start of the semester, the $1 would purchase 111.39 Japanese Yen while $1 will now purchase 108.81 Japanese Yen. Has the U.S. $ gotten stronger or weaker versus each these currencies over the past month? Identify and explain events in the U. S. economy that might cause these exchange rates to change as they have

Answer 1

The main reason behind the appreciation or depreciation of the dollar against other currencies is due to international trades. When the US is importing more than what it is exporting to a country then there is a negative trade balance or trade deficit. In this case, the foreign currency appreciates as there is more demand for it in the FOREX market which causes the dollar to depreciate.

The vice-versa is true when the dollar appreciates against any foreign currency.

So from the given data, we can clearly say that there is a trade deficit with Japan and Europe whereas a trade surplus with the UK. This has caused the fluctuation in the exchange rates.