Question

In conversation, our connotation of the word “strong” is something good or desirable, and our connotation of the word “weak” is something bad or undesirable. Is it the same with currency exchange rates? Why would a decline in the value of the dollar prompt BMW, or VW, or Mercedes-Benz to build production plants in the US? Is a strong dollar good or bad for the US? In your answer, be specific by referring to material in chapter 20, and/or by finding more current news.

Answer 1

Answer) When we talk about given automobile manufacturers given in question,they all are german,now let us say price of 1 dollar is equal 0.9 Euro,then as mentioned Dollar weakens and 1 Dollar becomes equal to 0.8 Euro,then the German manufacturers would be better off producing in US as they have to pay less in terms of real value,that is suppose earlier it would have required $100,000,000 for facilities,so in Euro terms it would have been 90,000,000 but now with dollar weak,it would require 80,000,000 Euros,so in terms of Euros these manufacturers would save 10,000,000 Euros and thus it is beneficial for these manufacturers to put production plants in US.

A strong dollar is good for US,though at the same time it is bad for US companies depending on sales outside US,but when we look at the fact that US citizens will be better off when they are travelling overseas,valuation of US companies will increase leading to less unemployment,real value of debt vis to vis other countries will go down and it will further strenhthen US power on negotiating table,it will generate consumer confidence and entrepreneurship spirit.In fact if you follow news you would know how countries where value of their currency weakens end up facing inflation and economic slowdown,so a strong dollar is good for US.

Answer is complete.Thank you!