Question

Suppose that as the result of the crisis in Greece, the Euro depreciates against the US dollar. Why should you care when the US dollar strengthens relative to other currencies? Describe the ways this could impact your life and that of your friends and family in the US.

Word count 350 words and one reference

Answer 1

Solution:-

Depreciation of Euro means the loss in the value of Greece’s currency and appreciation of the US dollar. This implies it takes more Euros to purchase dollars and hence there is an increase in the Exchange rate.

When the Euro depreciates relative to the dollar, Greece goods become more competitive in world markets as their price when exchanged to the dollar will be lower. The result will be an increase in Greek exports. On the other hand, US sellers that denominate their goods and services in dollars will be less competitive, as US products denominated in dollars will be more expensive in Greece. So, this is the cause of concern as it will make exports cheaper and imports expensive resulting in inflation.

It would affect the life of people living in Greece as their purchasing power will be lower and hence they would be able to buy less no. of American goods. So, they will be worse off. But for people living in the US will be enjoying more Greek goods at a cheaper rate and so they will be better off.