Question

You are watching a national news broadcast with your parents. The news anchor explains that an exchange rate for the dollar just hit its lowest value in a decade. The on-the-spot report shifts to a spokesman for Company XYZ, a heavy equipment manufacturer. The spokesman reports that sales of their earthmoving equipment have hit an all-time high and so has the value of their stock. Your parents are shocked by the report's positive view of the low value of the dollar. They just cancelled their European vacation because of the dollar's low value.

Why do Company XYZ and your parents have different opinions about the value of the dollar? If someone argues that a strong dollar is "good for America" because Americans are able to exchange some of their GDP for a greater amount of foreign GDP, is it true that a strong dollar is good for every American? Why or why not?

Answer 1

1) Caterpillar and the Parents have a different opinion because they are involved in different activities with regard to the value of dollar.

Caterpillar is positive because it is involved in manufacturing and exports goods to outside countries.As the exchange rate has fallen it means that the good exported by Caterpillar becomes cheap which increases its demand in the foreign markets.

The parents are however negative because they were planning a vacation to Europe.A decrease in exchange rate means that they will get less Euros in exchange of dollars so they will suffer huge losses.

2) No,a strong dollar is not good for every American because a strong dollar means it will benefit those people who are involved in the import activities and will be harmful to the exporters.So,the imports gets cheaper because the value of manufacurer's currency falls.The tourism sector will become costly and so their cost of living would be increased.Exporters would suffer as domestic goods become expensive abroad.The domestic companies who have a lot of business abroad will suffer as their income decreases.