Question

1. Curency Wars and Trade Wars:

A. What are Currency wars?

B.   Why do nations engage in Currency wars?

C.   Who gains and who loses?

D.   Explain the economic implications on warring nations using a specific example.

Answer 1

A. What are Currency wars?

Answer: A currency war refers to a condition in global affairs where many countries seek to deliberately depreciate the value of their domestic currencies to gain a trade advantage over other countries with a motive to stimulate their economies

B. Why do nations engage in Currency wars?

Currency war occurs when a country's central bank uses expansionary monetary policy to lower the value of its money to gain a trade advantage over other nations in order to stimulate the economy of their country. Thus are carried out for political and economic reasons.

C. Who gains and who loses?

Gainers: All those who receive dollar income or payments will receive more home currency for same amount of dollars. These can be exporter of home made goods and services, exports with low import content and people with foreign income

Losers: All those who have dollar obligation will require more home currency to buy the same amount of dollars. These can be individuals who have to go foreign for education & business travels; importers; overseas investor; borrowers who borrow money from foreign; raise the standard of living

D. Explain the economic implications on warring nations using a specific example.

Answer: The devaluation of Yuan made Chinese-made goods less expensive, and imports to China more expensive. Moreover negative effected companies with significant operations in China, such as iPhone maker Apple Inc.,that mainly copes with the dollar's potency. Overall devaluation of yuan has an economic implication on balance of trade for the US, i.e. exports fall and imports rise. Increasing imports and falling exports are not a good combination for any economy.