Question

d. One of the distinguishing features of international finance is exchange rate. Would you prefer a weaker U.S. dollar or a strong U.S. dollar?

100 words or less

Answer 1

There are pros and cons to both scenarios. A weaker US dollar helps exports by US firms because their products and services would be cheaper in the global markets. However, a weaker US dollar also means that consumers needs to pay more dollars all goods imported into the US. The US imports almost $2.4 trillion worth of goods each year. If the dollar is weak, you need to pay more dollars for the same quantity of goods.

On the other hand, if the US dollar is strong, you need to pay less dollars for getting imports into the country. However, the US exports are likely to get a hit because the cost of their products and services would be expensive for foreign consumers. US exports $1.6 trillion worth of goods and services last year, which would decline if the US dollar is stronger.

Finding the right value of exchange rate is a very difficult task and the government has to evaluate both the pros and cons of the decision. Given the current environment, US government seems to favor a weaker dollar to incentivize US exporters.