Question

Merrill Lynch quarterly review is just released. According to their review the dollar is presently strong and is expected to weaken over time. Assuming everything else constant, how will these expectations affect the tendency of U.S. investors to invest in foreign securities? How will these expectations affect the tendency of foreign investors to invest in US securities? Please elaborate.

Answer 1

When the dollar is presently strong, and it is expected to weaken, it will mean that United States investor will be finding other currency outside the United States of America costlier and and their investment in other currency will be decreasing because other currency had appreciated in context with dollar.

Foreign investor will be investing more into the United States economy because foreign investor will be finding United States dollars cheaper and they will be finding investment in America cheaper and hence they are going to invest more in United States of America because United States American dollar has gone cheap.

It is always about comparison with cheaper or expensive currency and then there will be relative investment made because when the dollar will be weakening then the foreign investor will be buying dollar and dollar can buy lesser of the foreign securities so American investors will be investing lesser in foreign countries.